While we usually can’t prevent the unexpected from happening, sometimes we can get some protection. Insurance offers peace of mind against the unexpected, at least financially, should certain things happen. But there are numerous insurance options, and many financial experts will say you need to have them all. It can be difficult to determine what insurance you really need.
Purchasing the right type and amount of insurance is always determined by your specific situation. Factors such as children, age, lifestyle, and employment benefits play a role when you’re considering insurance. As you map out your financial future, there are five types of insurance that most financial experts recommend we all have: life, health, car, homeowners/rental, and disability insurance.
Many financial experts consider life insurance to be an integral part of your financial plan. How crucial it is to include in your planning depends on your circumstances. If you are young and single, your need is minimal. If you are responsible for supporting a family, ensuring, adequate protection is crucial.
If you’re married with a family when you die, life insurance can replace lost income, help pay lingering debts, or pay for your children’s college education. If you’re single, life insurance can cover your funeral expenses, provide those you leave behind or even pay off any debts you leave behind. Industry experts suggest a life insurance policy that covers 10 times your yearly income. But that’s a number not everyone can afford.
Your ability to buy life insurance depends primarily on your age and health. The younger and healthier you are, the lower the cost is likely to be. You may need to complete a medical exam, but some life insurance companies offer no-exam life policies.
When estimating the amount of life insurance coverage you need, remember to factor in funeral expenses and daily living expenses. These may include mortgage payments, outstanding loans, credit card debt, taxes, child care, and future college costs.
Types of Life Insurance
Traditional Whole Life: can be used as an income toll and insurance instrument. As long as you continue to pay the monthly premiums, your whole life covers you until you die.
Term Life: A life insurance policy that covers you for a set amount of time.
If you pass after your life insurance coverage expiration, your beneficiaries will not receive your death benefit. Additionally, if you make any false claims to your insurer and they find out, they may deny your beneficiary’s claims. For example, if you fail to let your insurer know you smoke and they review your life insurance application for fraud, your beneficiaries can be at risk for not receiving your death benefit.
Health insurance is easily one of the most important types of insurance to have. Your good health is what allows you to work, earn money, and enjoy life. If you were to develop a serious illness or have an accident without being insured, you might find yourself unable to receive treatment or forced to pay large medical bills.
Purchasing health insurance is an integral part of managing key personal financial risks.
What does it cover?
Health insurance covers your necessary medical costs, from doctor’s appointments to surgeries. Health insurance covers preventative care, such as monthly check-ins and tests, along with coverage for illnesses and injuries.
Do you need it?
Health insurance is arguably the most important type of insurance.
When you’re going to purchase health insurance, consider the following:
- Needs: Young and healthy single persons require less coverage than those with families, the elderly, or persons with chronic health issues. If you think you’re going to be using your insurance frequently, you’ll want to find a plan that has a low deductible and copays.
- Doctors: If you like your doctor, try and find a plan to keep your current physician.
Cost: Analyze your budget and determine what you can afford. Remember that plans with higher copays and deductibles also have lower premiums, while plans with high premiums.
You can also check our article on how to obtain low-cost health insurance.
Auto insurance is critical if you drive. Not only is it required in most states, but car accidents are expensive—over $10,000 even without any injuries and more than $1.5 million if a crash is fatal. These costs come from medical expenses, vehicle damage, wage and productivity losses, and more.
What does it cover?
Several different types of car insurance cover different scenarios, including:
- Liability: Liability insurance comes in two forms: bodily injury and property damage liability. These do not cover the driver or passengers–only pedestrians.
- Personal Injury Protection: This type of coverage will cover medical expenses related to driver and passenger injuries.
- Collision: Collision insurance will cover the cost of the damage to your car if you get into an accident, whether you’re at fault or not.
- Comprehensive: Whereas collision insurance only covers damage to your car caused by an accident, comprehensive insurance covers any car-related damage, whether it’s a tree falling on your car or vandalism from unruly neighborhood kids, for example.
- Uninsured or Underinsured Motorist: This covers you if the person who hits your car does not have enough insurance to cover the damage.
If you drive without auto insurance and have an accident, fines will probably be the least of your financial burden. If you, a passenger, or the other driver is injured in the accident, auto insurance will cover the expenses related to the incident for you and your passengers (regardless of who is at fault) and help guard you against any litigation that might result from the accident. Auto insurance also protects your vehicle against theft, vandalism, or a natural disaster, such as a hurricane or other weather-related incidents.
If you’re buying a car with a loan, you may also be required to add comprehensive and collision coverage to your policy. This coverage pays for damages to your vehicle resulting from car accidents, theft, vandalism, and other hazards, and they’re essential if repairing or replacing your car would create a financial hardship for you.
Again, as with all insurance, your individual circumstances will determine the cost of auto insurance. To make sure you get the right insurance for you, compare several rate quotes and the coverage provided, and check periodically to see if you qualify for lower rates based on your age, driving record, or the area where you live. You can check out our article on auto insurance quotes.
Do you need it?
Yes! Every state requires you to have auto insurance if you’re going to drive a vehicle. If you just purchased your first car or have been driving uninsured, it’s time to find a plan with an auto insurance finder so you have your back covered in the event of an accident.
You probably don’t need it if…
If you don’t own a vehicle or have a driver’s license, you won’t need car insurance.
Home Owners/Rental Insurance
Home insurance protects you and your investment by extending a financial safety net when unpredictable damage occurs.
Home insurance is a good idea even if you’ve paid off your mortgage because it shields you against expenses for property damage and liability for injuries and property damage to guests caused by you or your family (including pets). It can also cover additional living expenses if your home is uninhabitable after a covered claim and pay to repair or rebuild detached structures, like your fence and shed, damaged by a covered claim.
If you rent your home, a renter insurance policy is just as important and may be required. Sure, your landlord’s insurance covers the structure itself, but your personal belongings can add up to a significant amount of money. In the event of a burglary, fire, or disaster, your renter’s policy should cover most of the replacement costs. It may also help pay additional living expenses if you have to stay elsewhere while your home is being repaired. Both home insurance and renter’s insurance offer liability protection.
What does it cover?
Homeowners insurance covers your home against damage and theft, as well as other perils such as damage to a visitor’s property or any costs if someone was injured on your property. It also covers your home’s foundation, roof, and walls, as well as personal property. However, you may need additional insurance to cover natural disasters like flooding, earthquakes, and wildfires.
Renters insurance covers you against damage or theft of personal items in an apartment, and in some cases, your car. It also covers liability costs if someone was injured in your apartment or if their belongings were damaged or stolen from your apartment. However, renters insurance typically does not cover precious items, damage from pests, and natural disasters.
Do you need it?
Homeowners insurance is essential because a home is oftentimes one’s most valuable asset and is often required by your mortgage lender. Not only is your home covered, but most of your valuables and personal belongings are covered, as well.
Renters insurance isn’t as crucial unless you have a large apartment that has plenty of valuables. But even if you don’t, know that renter’s insurance is usually very low-cost, so it might be well worth the peace of mind it provides.
Disability insurance is the one type of insurance most of us think we will never need.
Some workers who have great health insurance and a good life insurance policy don’t prepare for the day when they might not work for weeks, months, or ever again. While health insurance pays for hospitalization and medical bills, you’re still left with those daily expenses that your paycheck generally covers. Disability insurance is the only type of insurance that will benefit you if you are ill or injured and can’t do your job.
Many employers offer both short- and long-term disability insurance as part of their benefits package. This would be the best option for securing affordable disability coverage.
What does it cover?
Disability insurance can cover permanent, temporary, partial, or total disability. However, it does not cover medical care and services for long-term care.
Disability insurance is relatively affordable, but it could provide tremendous financial help if you become disabled for any length of time.
Be Secured, Not Paranoid
Humans have a pretty strong sense of self-preservation, so it’s natural to feel an urge to protect you against any and every calamity. Most people would rather pay a little bit of money each month than struggle to come up with a larger amount of money in a time of crisis.
On the flip side, many people think they have nothing to worry about that they probably won’t ever need one of the many insurance types out there.
It’s best to take a stance somewhere in between these two ideologies. You should definitely consider buying all or most of the 5 necessary types of insurance mentioned above. These are the most important insurance types that provide huge financial relief for very realistic scenarios.
Also, you can check with your employer first for available coverage. If your employer doesn’t offer the type of insurance you want, obtain quotes from several insurance providers. Those who offer coverage in multiple areas may provide some discounts if you purchase more than one type of coverage. While insurance is expensive, not having it could be far more costly.