Insurance can be confusing. The fear of being under-insured or over-insured looms as you make decisions about everything from whether to opt in to your company’s dental plan to how much coverage to carry on your jewelry.
It’s highly unlikely that you would need to purchase every type of coverage that’s available to you. Even among these types of policies, your needs are likely to ebb and flow over time. That’s why it’s important to know what kinds of coverage are right for you and your family right now, and how to determine how much coverage is enough. But most people may want to consider these eight types of insurance …
Let’s start by exploring what is often considered the most important — life insurance.
When it comes to planning for your financial future, no decision is right for everyone. There’s no way to know whether what works for one family will work for another.
One exception to this rule is life insurance.
Almost all married couples and young families should consider purchasing life insurance. The last thing you want your spouse, partner, or kids to face in the event of a tragedy is an immediate financial hardship.
The best part is that life insurance doesn’t have to be crazy expensive. Depending on your age and health, reasonable life insurance coverage amounts can be purchased for $15 to $30 per month. For example:
- 30-year $250,000 Haven Term policy for a 30-year old man in excellent health, $26.53
- 30-year $300,000 Haven Term policy for a 28-year old woman in excellent health, $23.67
- 20-year, $250,000 Haven Term policy for a 25-year old man in excellent health, $16.99
- 20-year $200,000 Haven Term policy for a 40-year old man in excellent health, $20.49
- 20-year $250,000 Haven Term policy for a 45-year old woman in excellent health, $29.64
I’ve seen what happens when a spouse who doesn’t have life insurance passes away. A colleague of mine was widowed unexpectedly at the age of 27. She and her partner had recently purchased a home, and they had no life insurance coverage. She needed to rent rooms to friends to afford the payments.
Renting rooms helped my friend in more ways than just financial. She was able to closely bond with friends during a tragic season of life. But I think that life insurance coverage could have given her more flexibility.
This kind of event is always a bit of a wake-up call. There’s just no telling when something unexpected could happen. Having a comfortable amount of life insurance can help to ease some of the financial stress during an already difficult time of life.
Disability income insurance
Most people, especially entrepreneurs, overlook disability insurance. That could be cause for concern because the Council for Disability Awareness says that at least 1 in 4 of today’s 20-year-olds will experience a disability at some point in their lives. The average long-term disability claim lasts 34.6 months. Very few Americans have enough cash flow to cover their income during that period of time. Disability income insurance can help protect a portion of your income if you were to become too sick or injured to work.
Many employers offer some form of group disability coverage. Because disability income insurance is typically a voluntary benefit, the employee may be required to pay the full cost, leading some to opt out. Just know that disability insurance offered through your employer is often less expensive than an individual policy that you can buy yourself outside of work. If you can take advantage of a group rate, by all means, check out the options your employer has available. If you’re self-employed, or your workplace doesn’t offer coverage, consider looking at self-insured (individual) insurance options.
Although health insurance may not be considered a glamorous topic, it’s still important to have coverage. Some people with access to employer-sponsored plans, or who purchase coverage on the exchange, or privately sign up or renew during open enrollment season do so and then never think about it again. That may not get you the best coverage at the best price. Some people choose to go without coverage at all. No matter what bucket you’re in, it can be really smart to get informed about your options and potential costs so that you can make the best choice no matter what your situation. (Here’s a hint: Going without is not necessarily the cheapest option. Living without health insurance exposes you to potentially high medical costs that result from an injury or illness.)
Why worry about health insurance, especially if you’re relatively young and healthy?
Glad you asked. Here’s an unfortunate reality: most Americans today don’t have enough in emergency-savings to cover a $1,000 medical emergency. That’s a terrifying statistic.
Although you may still be responsible for hefty copays in a serious medical emergency, health insurance coverage can take a huge cost burden off your shoulders in the event an illness or injury leaves you facing a stack of medical bills. Additionally, health insurance can help you secure preventative care with no out-of-pocket cost. Regular preventative care could help you avoid costly medical issues later on.
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Auto insurance coverage comes in a range of options that can offset the cost of accidents, whether or not you were at fault. Each state sets its own minimum insurance requirements. If you have a car, unless you live in Virginia or New Hampshire, you’re legally obligated to at least carry your state’s required minimum amount of coverage.
An auto insurance policy is typically made up of different types of coverage that kick in for different types of claims. Some of these coverage components are required by law, some are required by your lender if you have an outstanding car loan, and some are optional. For example:
- Liability insurance helps pay for damage that you cause by a car accident to other people’s property . The vast majority of us are required to carry this type of coverage for our vehicles.
- Personal injury protection provides a benefit for your own medical payments incurred due to an accident. This coverage is required in some states.
- Uninsured/underinsured motorist coverage helps protect you if you’re in an accident with a driver who doesn’t have auto insurance coverage or whose coverage limits are insufficient to pay for damages they cause. This coverage is required in some states.
- Collision coverage helps to pay for your damages after a collision with an object or another car, even if it’s your fault. This coverage is usually required by lenders while you are still making payments. If you own your vehicle free and clear, it’s optional.
- Comprehensive coverage pays for damages from covered events that are not caused by a collision, such as vandalism, a rock in the windshield, or a falling object. This coverage is usually optional.
Sometimes car insurance also comes with perks like roadside assistance or towing, which can come in handy.
Consider taking some time to shop around for your auto insurance. You might be surprised by the many different coverage options available to you, and you may be able to secure better rates by comparing coverage amounts and costs across different providers.
Long-term care insurance
Long-term care insurance has its fans and foes — and for good reason. Policies can be expensive, especially if you purchase coverage when you’re older, and no crystal ball can predict how much coverage you’ll actually need, or if you’ll need it at all. Before making a decision for or against, you should know a few basic details.
The average cost of long-term care is $225/day or $6,844/month for a semi-private room in a nursing home as of 2016. That’s a significant financial burden that is unaffordable for many people, but it’s worth considering, because 52.3 percent of us will need some form of long-term care need during our lifetime.
Some employers offer long term care insurance their employees at a group rate. You may want to consider this if you’re employer offers it. If you’re planning to self-insure, it may be a good idea to work with a financial planner who can help you evaluate your coverage needs and find a provider that can meet them without breaking the bank.
Homeowners insurance covers the cost to repair or replace parts of your home or your belongings in the event of a covered loss.
Homeowners insurance is, of course, for homeowners. In addition to covering the cost to repair or replace parts of your home in the event of a covered loss (theft, for example) or damage. Some policies also help pay for covered losses if you accidentally damage another person’s property at your home, or if a visitor is injured while on your property. Some policies may provide some type of compensation in certain situations – for example, alternative living arrangements if the home is uninhabitable due to a covered event.
It’s also important to make sure that your homeowners insurance has the amount of coverage you need. Many people are surprised to find out how much it would cost to replace everything in the event of a total loss. Estimating the worth of your belongings can be a huge help when determining how much coverage you need. Work with your insurer to come up with a total value.
Homeowners insurance offers some liability coverage. Every policy is a little bit different, but it’s important to check carefully to make sure you know what’s covered. For example, in some areas, specific natural disasters aren’t covered by standard policies. Typically, damage caused by fires, lightning strikes, windstorms, and hail are covered – but flooding, earthquakes, or other events may not be covered based on the terms of your policy. If you’re in an area that faces these types of natural disasters, make sure that your policy covers them, or shop around for a policy that does. You may also be required by law or by your lender to purchase supplemental insurance against certain types of events. For example, if you have a government-backed loan and you live in an area prone to flooding, you will be required to maintain a separate flood policy.
Renters insurance offers many similar benefits to homeowners insurance. One main distinction between homeowners insurance and renters insurance is that the homeowners policy typically does not cover damage to or loss of the renter’s possessions, but the renters policy does.
Similar to homeowners insurance, renters insurance covers your belongings if you rent (in most cases, losses incurred by renters are not covered by the landlord’s insurance). Many And also like homeowners insurance, every renters insurance policy is different, so it’s important to check carefully to make sure you know what’s covered.
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Identity theft protection
Identity theft protection isn’t technically insurance, but it can be useful. Companies who offer identity theft protection help to monitor your credit report, flag attempts to steal your identity and information, and help you recover if identity theft occurs. Especially in the wake of a number of recent data breaches in the news, more and more people are looking for ways to secure their identity – and this might be a cost-effective solution. Some employers have jumped on the identity theft protection bandwagon, too, and now offer it to their employees at a discounted price.
Keep in mind that you can protect your own identity for free. You can – and should – request a free copy of your credit report from each of the three major credit bureaus every 12 months. AnnualCreditReport.com is the only website authorized to provide the free copies you are entitled to by law.
You can also place a freeze on your credit report with each of the three credit bureaus. You’ll have to contact each bureau separately. With a freeze in place, your data will not be released to any creditor who runs a credit check on you. Since a credit check is required in the vast majority of new credit applications, a freeze can prevent a thief from obtaining new credit in your name. If you want to apply for credit, you can temporarily lift the freeze with the bureau from which the new creditor purchases its reports. Note that a freeze cannot prevent identity fraud, such as the use of a stolen credit card number.
Insurance is your financial safety net
About 28 percent of Americans are uninsured or underinsured – and that’s a problem. Insurance costs can be low compared to the potential benefits paid in the event that you need to file a claim. The key is to balance the amount of coverage you need with the premiums you can afford. Determining the type of coverage you’re looking for and your budget for the premiums ahead of time can help to inform your search as you look for the best policies for you and your family.
Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more. Opinions are her own.
Haven Life Insurance Agency offers this as educational information only.