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.

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.

Posted on 2/2/14
3/13 - 16
3/13 - 16

Most Read This Week

April 28, 2015 4121

Search for Stolen Vehicle Ends with Woman Charged…

by SurfKY News
April 27, 2015 3458

Online Petition Seeking Re­opening of Shanice…

by Samantha Carver, SurfKY News
April 28, 2015 3315

Man Charged with Stalking Smoke Shop Clerk

by MPD
April 27, 2015 2869

Hopkins County Drug War ― Are We Winning?

by Doreen Dennis, SurfKY News
April 30, 2015 2774

Family Says 'Goodbye' to Dog After It Allegedly…

by Doreen Dennis, SurfKY News

Most Read This Month

April 17, 2015 15432

An Open Letter from an Addict

by Olivia Kirks
April 23, 2015 8455

Man Charged with Sodomy, Incest/Victim under 12

by SurfKY News

Stories Trending Now

May 03, 2015 1279

Two Injured During Two-Vehicle Collision

by SurfKY News
May 03, 2015 972

Faith Baptist Hosts Family Fun Day

by Tammy Holloway, SurfKY News
May 04, 2015 837

Teen Injured During Collision with Police Cruiser

by SurfKY News
May 03, 2015 626

Dave Says - May 3, 2015

by Dave Ramsey
May 02, 2015 620

Baptist Health Hosts Annual ‘Bike Safety Day’

by Gary Gates, SurfKY News
May 04, 2015 566

Three Injured in Two-Vehicle Collision

by SurfKY News
May 02, 2015 533

Conquering the clutter: Cleanliness with kids is…

by SurfKY News
May 03, 2015 463

2015 Correctional Employees' Week Celebrated…

by Michael Caudill
May 03, 2015 457

Legislator's Log - Week of May 3, 2015

by Brent Yonts
May 03, 2015 405

Outdoor Truths – May 3, 2015

by Gary Miller