Commentary

DAVE SAYS

Umbrella insurance?
Dave Ramsey

Dear Dave,

At what level of net worth should someone consider umbrella insurance?

Matt Dear Matt,

I think it’s something you should consider if you have a net worth of $500,000 or greater. But first you should be clear on what net worth really means.

Net worth is what you own minus what you owe. So the fact that you make a million dollars a year is not the determining factor in whether or not you’re a millionaire.

That being said, I would get umbrella insurance, which is extra liability insurance, when you reach the half-million mark in net worth. Prior to that I’d suggest carrying $ 500,000 worth of liability on your homeowner’s, car insurance and any other policies that have liability attached to them. Once you reach and cross that $500,000 threshold in net worth, however, I’d advise picking up another $1 million in liability insurance, called an umbrella policy, that attaches to the top of that and covers everything for an additional $1 million.

You can get it for about $200 a year in most states.

—Dave

Debt snowball, rental property

Dear Dave,

Should rental property debt be included in the debt snowball?

Matthew Dear Matthew,

No, it should not. The debt snowball is Baby Step 2 in my plan, where you stop saving and pay off all debt except for your home—and I would include rental properties in there—from smallest to largest. Prior to this, you should start with Baby Step 1, which is saving up a starter emergency fund of $1,000.

Baby Step 3 is going back and fully funding your emergency fund with three to six months of expenses. Expenses, not income. Baby Step 4 is investing 15 percent of your household income in Roth IRAs and other pre-tax retirement plans. Baby Step 5 means setting aside college money for the kids.

Baby Step 6 is where you pay off your home, and Baby Step 7 is when you relax, build wealth, and give.

Think about it this way, Matthew. Which would you rather lose in a worst-case scenario: your home or your rental properties? If they’re in the same general range of debt, I’m going to pay off the home first and the rental properties last.

—Dave

Dave Ramsey is a trusted voice on money and business. A best-selling author, his radio show is on more than 500 stations.


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2013-11-07 digital edition



The burn ban for Milam County has been lifted. Burning is always prohibited in the county's municipalities.


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