dave says1KENTUCKY (11/3/13) – This week Dave discusses 'When do I need umbrella insurance?' and 'Debt snowball and rental property'

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. The only people who use that definition are the financially uninformed and politicians who twist things around and throw out catch phrases designed to further their own agendas.

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.

It’s a great buy, Matt. You can get it for about $200 a year in most states. - Dave

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.

As a reminder, Baby Step 3 is going back and fully funding your emergency fund with three to six months of expenses. Notice that I said expenses, not income. After that, Baby Step 4 is investing 15 percent of your household income in Roth IRAs and other pre-tax retirement plans, and 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. Again, Baby Step 6 would include any rental properties that weren’t bought and paid for with cash. My advice would be to pay off your home before taking care of the rental properties, and that’s simply a risk management perspective. Now, if you owe just $30,000 on your rental properties but still have a $3 million mortgage hanging over your head, you might go ahead and knock out the rental properties first.

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 America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.


Disclaimer: The content supplied by columnists and letters to the Editor on this site does not in any way, shape or form, implied or otherwise, necessarily express or suggest endorsement or support of any of such content, statement, or opinions therein. SurfKY News does not necessarily adhere to or endorse content provided by outside non-staff sources.

e-max.it: your social media marketing partner

LIKE SurfKY on Facebook - Click here to LIKE us now.

© Copyright 2015 SurfKY News Group, Inc. All rights reserved. This material may not be published, broadcast, or rewritten without permission. SurfKY News encourages you to share this story on social media.

In Other News...

AHS, DCHS Earn Silver Awards on U.S. News and World Report High School Rankings

DAVIESS COUNTY, Ky. (5/24/15) — Apollo and Daviess County high schools are among the top high schools in Kentucky as… Read More

Providence Police Reports Released

PROVIDENCE, Ky. (5/25/15) — The Providence Police Department released the following reports Monday, May 25. Christopher… Read More
1 DOW 18,232.02
-53.72 (-0.29%)    
2 S&P 2,126.06
-4.76 (-0.22%)    
3 NASDAQ 5,089.36
0.00 (0.00%)    

Most Read This Week

May 22, 2015 7137

Madisonville Man Charged with First-Degree Rape

by SurfKY News
May 23, 2015 6697

Missing 5-Year-Old Boy Found

by Doreen Dennis, SurfKY News
May 19, 2015 6375

Owensboro Health Proposes Building $15M Health…

by Doreen Dennis, SurfKY News
May 19, 2015 4237

Two Charged with Marijuana Possession after…

by SurfKY News
May 20, 2015 3514

Pennyrile Forest State Resort Park Holding Beach…

by Gil Lawson

Most Read This Month

May 15, 2015 10684

New Madisonville Business In Full Operation Soon

by Tammy Holloway, SurfKY News
May 15, 2015 7489

Investigation of Local Barber Shop Leads to Drug…

by SurfKY News

Stories Trending Now

May 25, 2015 2956

Can Sunscreen Save Your Life?

by Melissa Patrick
May 25, 2015 1699

UPDATE - MPD Seeks Three in Residential Robbery

by SurfKY News
May 25, 2015 1412

Hopkins Man Injured in Muhlenberg Motorcycle…

by SurfKY News
May 24, 2015 1388

MCC's Felicia Johnson Receives State KCTCS Award

by Tammy Holloway, SurfKY News
May 23, 2015 1158

'Cooking for the Cure' Fundraiser Brings Out…

by Tammy Holloway, SurfKY News
May 25, 2015 940

Damascus Road House Leads Young People to Christ

by Tammy Holloway, SurfKY News
May 25, 2015 892

Seniors Celebrate with Cook-out, Games, Fellowship

by Tammy Holloway, SurfKY News
May 24, 2015 856

Reading Solutions Offers Students a Hand in…

by Charles W. Riley II, SurfKY News
May 24, 2015 701

Caldwell County Native Helping Unwrap Secrets of…

by Whitney Harder
May 24, 2015 594

Prosecutors from Kentucky, Tennessee to Attend…

by Leland Hulbert