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How much should you budget for insurance? Five key factors to consider

This piece seeks to shed some light on this as well as the key factors to consider when allocating for insurance in your monthly budget.

Life is indeed full of uncertainties. Whether it’s a terrible accident abroad, a major illness that requires emergency surgery, or a raging fire that turns your home into ashes, nothing can be more financially derailing than an unplanned occurrence. Besides throwing you financially off-balance, it could easily turn your life upside-down.

This is why insurance is an important inclusion in most people’s budgets. It protects you from unforeseen risks that you would otherwise not have afforded if they caught you by surprise. But if you’re like most people, it is not unusual to wonder just how much you should set aside each month for insurance premiums.
This piece seeks to shed some light on this as well as the key factors to consider when allocating for insurance in your monthly budget.

How much should you set aside for insurance? (average estimates)
To begin with, there’s really no one-size-fits-all answer to this question. This is because the amount may vary from one person to the other depending on factors such as their specific needs for coverage, age, risks, and the insurance company they choose, among others.

Insurance prices may also vary from one country to the other. While the average middle-aged Australian may spend roughly between $1,200 and $1,400, AUD on car insurance annually, a similar person in America may spend between $1200 and $1,800, USD per year.

In both scenarios, this translates to about $100 to $180 per month on car insurance alone. In the US, the average household may spend an approximate additional $306 on health insurance, $40 on life insurance, and $85 on homeowners insurance each month. This could total to about $530 give or take.

Key factors to consider when budgeting for insurance

1. The type of insurance you need 
One of the biggest factors to consider when budgeting for insurance is the type of coverage you need. For instance, you might not need car insurance if you don’t drive. You may also not require health insurance if your employer's health benefits cover you in full.

If you own a home, homeowners insurance will be an absolute must. Having life insurance is also a good way to protect your loved ones financially in case you die. You might also need travel insurance if you travel regularly. Basically, the type of insurance you need will affect how much you need to budget.

2. The amount of coverage you need 
The amount of coverage you need will also affect the cost. For example, if you need comprehensive health insurance, it will cost more than if you only need basic coverage. The same case applies if you have more than one dependent that needs health insurance. You may also need a multi-car insurance policy if you own more than one vehicle, which means you’ll have to pay more for auto insurance.

3. The deductibles you’re comfortable with 
The term deductible simply means the amount you pay for covered services before your coverage kicks in. Usually, the amount you pay for insurance premiums decreases as the deductibles increase. But you need to be comfortable with the amount you'll have to pay out of pocket if you need to make a claim.

4. Your personal risk factors 
In many cases, your age, health, and lifestyle can all play a role in determining your insurance rates. If you're a young, healthy non-smoker, for instance, you'll probably pay less for health, life, and car insurance compared to if you’re older, have pre-existing illnesses, or engage in unhealthy practices like smoking and drinking. Also, car insurance can be more expensive if you’re found culpable of traffic violations.

5. The insurance career 
Finally, the insurance provider you choose will also determine how much you should include in your budget for insurance. Normally, it’s crucial to shop around and compare quotes before you decide on a policy, as different insurance companies offer different rates for different types of coverage.

Finding Cheaper Insurance in Your Country, e.g. Australia 
As earlier stated, it’s a wise decision to compare insurance rates from multiple careers so you can pick the one that best suits your needs and budget. If you’re in Australia, you can do this by checking out iSelect Australia | Compare & Save on Car, Travel, Life, Home Loans & More from your home’s comfort.

Insurance is a critical component of financial planning, which is why it’s important to have it in your budget each month. While doing so, the above few points can help you estimate how much you should set aside so you can avoid unnecessary risks and extra costs.

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