Sunday, January 25, 2015
Davis Motor Sales banner ad
Posted on 2/2/14

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.

© 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 by using one of the social media links below.

2/6/2014 - posted
3/13 - 16
Started 11/8/2013
Started 11/8/2013
2/6/2014 - posted
3/13 - 16
Started 11/8/2013
Started 11/8/2013

Most Read This Week

January 19, 2015 8851

Two-Year-Old Child Dies after Being Struck by…

in Top News For All Sites by Paul Ray
January 19, 2015 8741

UPDATE - Lady Mustangs Fall to South Warren

in Local (Muhlenberg) Top News by Steve LeMaster
January 23, 2015 7273

Local Church's Faith Restored; 71 Souls Saved…

in Video by Gary Gates, SurfKY News
January 22, 2015 6768

Nortonville Man Accused of Selling Drugs near…

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Jail
January 20, 2015 6558

Bridal, Prom, Pageant Expo Planned for February…

in Hopkins News by Dana Brown
January 23, 2015 5318

Parents Face Charges after Marijuana Joint Falls…

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Jail
January 21, 2015 5168

KYDOT Pre-Treating Roads Thursday in Antipation…

in Top News For All Sites by Keith Todd
January 21, 2015 4664

Man Arrested after Allegedly Nodding off on Baby…

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Jail

Most Read This Month

January 08, 2015 20279

Woman Claiming to be 'Lady Gaga' Tours Town in…

in Top News For All Sites by Madisonville Police Department
January 15, 2015 19873

UPDATE: Fatality Victim's Name Officially Released

in Top News For All Sites by Doreen Dennis, SurfKY News

Stories Trending Today

January 23, 2015 1861

School Board Hears Public Comments Regarding…

in Local (Muhlenberg) Top News by Charles W. Riley II, SurfKY News
January 25, 2015 1772

Dean’s List Announced

in Top News For All Sites Touching Hopkins by Joyce Riggs
January 24, 2015 1500

Five Injured in Two-Vehicle Collision

in Local (Muhlenberg) Top News by Chris E. King
January 24, 2015 1285

Happenings, Meetings Listed for Hopkins County

in Hopkins News by Amber Averitt, SurfKY News
January 24, 2015 1125

Kentucky 2014 Highway Fatality Figures Released

in General News For All Sites by Keith Todd
January 25, 2015 1107

Two Die, Two Injured in Two-Vehicle Accident

in Local (Owensboro) Top News by Dispatcher Dustin Staves
January 24, 2015 1082

PSC Bars $54 Million in Kentucky Power Fuel Cost…

in General News For All Sites by Andrew Melnykovych
January 24, 2015 1076

Spelling Bee Contest Winners Announced

in Local (Hopkins) Top News by Joyce Riggs
January 24, 2015 1031

Keeping the Faith - 'What It's Good For'

in General News For All Sites by Ronnie McBrayer
January 24, 2015 972

Busting the Myths of Leadership

in General News For All Sites by David Taylor
January 24, 2015 932

Hooked on Science - Feather Balance

in General News For All Sites by Jason Lindsey
January 24, 2015 892

Burrough: Tech Center Construction on Schedule

in Local (Hopkins) Top News by Tammy Holloway, SurfKY News