Accidents happen. You never know what life has in store for you and a single misfortune can be devastating.
That’s why you need insurance in your financial plan, to protect your health, your earning capacity and your assets.
But with so many types of insurance, how do you know which ones are worth it and which ones you don’t need?
This article will help you answer that question by going over the 5 types of insurance everyone needs and why.
1. Health insurance
The first (and most common) type of insurance you need is health insurance. You never know when you’ll have a medical emergency, and it can get expensive fast. In 2017, the average cost of an emergency room visit was
Most people get health insurance through their employer, but if you’re self-employed or unemployed, you can also get it through the federal health care marketplace at health.gov. Depending on how much you earn, you might even qualify for a government-subsidized plan.
Otherwise, you can always purchase health insurance directly from a health insurance company. Consult a health insurance broker to find the best one for your situation.
There are many types of health insurance plans. For example, you can get a high-deductible plan coupled with a health savings account (HSA). This has many advantages.
For one, a high-deductible plan will lower your premiums (although it will also increase your deductible so you pay more out of pocket for each doctor visit). But it also qualifies you for an HSA where you can put money aside to pay medical bills. The advantage of an HSA is that it is very tax-efficient: you can deposit money into it tax-free (i.e. deduct it from your taxes), invest funds tax-free and withdraw the funds tax-free. It’s a triple whammy!
2. Car insurance
Every state requires some level of auto insurance to protect you, your vehicle, and others in the event of an accident.
Here are the different types of auto coverage you can get:
- Liability coverage—This covers any damage or injury you cause to others. It is required in almost all states.
- Uninsured/Underinsured (UM) Motorist Coverage—This covers medical bills, lost wages, pain or suffering you or your passengers suffer if you are hit by an uninsured driver.
- Personal Injury Protection (PIP)—This covers injuries, lost wages or rehabilitation costs for you and your passengers, regardless of who is responsible for the accident.
- Coverage of medical expenses—This helps pay for medical expenses (usually between
$1,000and $5,000) regardless of fault.
- Collision coverage—This covers damage to your car regardless of who is at fault.
- Full Coverage—This covers any damage to your car or any loss that does not result from a collision, including theft and damage caused by floods, hail, fire, vandalism, falling objects and impacts from animals.
- Learner driver insurance—This is a flexible cover for those who are working towards getting their driver’s license.
You don’t need all types of auto coverage, but you should have liability coverage at a minimum, and preferably more. Speak to an auto insurance agent to determine what is best for your situation.
3. Life insurance
Life insurance protects those who are financially dependent on you (for example, your spouse and children) if you die. Since we all die at some point, this is extremely important to have. And even, only 54% of Americans have a life insurance policy.
Life insurance can also help with the cost of your funeral and burial, which otherwise often places an unexpected financial burden on your family.
There are two types of life insurance: term life insurance and whole life insurance. Term insurance covers a fixed period (for example, 10, 20 or 30 years) and is generally more affordable, while whole life insurance offers coverage for life and has a cash value component that you can withdraw in during your retirement.
Most experts recommend term life insurance for the average person, and the sooner you get it, the cheaper it will be since the risk of death is lower. So look into some life insurance policies today!
4. Long Term Disability Insurance
Just as you never know when you will die, you also never know when you will have a serious accident that will render you disabled.
That’s why you need long-term disability insurance. Most employers will cover 3-6 months of short term disability. But beyond that, you need long-term disability insurance, which usually kicks in once your short-term coverage ends and will replace 40% to 70% of your income.
5. Home or tenant insurance
Finally, you need home or tenant insurance. Home insurance helps repair or replace your home if something goes wrong, while rental insurance only covers your belongings inside your home (since you don’t own the property).
That said, you should look for a comprehensive home insurance policy that covers damage, property loss, and the cost of temporarily staying elsewhere while your home is being rebuilt or repaired.
If you’ve financed your home (meaning you have a mortgage), your lender will likely require you to purchase homeowners insurance. And if you are a tenant, your landlord may also ask you to take out rental insurance.
Ultimately, the whole point of getting insurance is to mitigate risk. You don’t want to put yourself in the impossible position of receiving a bill you can’t pay or leaving your loved ones in financial difficulty.
So shop around for insurance policies in each of the five areas listed above. Compare prices, coverage, benefits and reviews online at sites like policygenius.com. It can take a long time to find the right policy, but it’s worth it. And you can always ask an insurance broker to help you understand your options and do a well-informed analysis.