(Tiny Tips) – Types of Insurance – Insurance provides protection against the unexpected. There’s a policy that covers just about everything, but some are more important than others. It all depends on your needs.
You should keep these four types of insurance in mind when planning your future.
What Are the Types of Insurance You Need?
Auto Insurance
If you drive a car, car insurance is crucial. Not only is this required in most states, but paying for damages from a car accident can also be expensive. According to 2019 data, a car accident can cost $12,000 even if no one is injured, or more than $1.7 million if the accident results in a death. These costs come from medical bills, vehicle damage, lost wages and productivity, and more.
Most states require you to carry basic auto liability insurance to cover legal fees, injury or death, and property damage to others if you are legally responsible. Some states also require you to carry personal injury protection (PIP) and/or uninsured auto insurance. These policies cover you and your passengers for medical expenses related to the incident, regardless of who is responsible. This also helps cover hit-and-run accidents and collisions with uninsured drivers.
Notes
If you buy a car with a loan, you may also want to add comprehensive and collision coverage to your policy to cover damage to your vehicle due to car accidents, theft, vandalism, and other hazards. They are especially important if repairing or replacing your car would be a financial burden on you.
Home Insurance
For many people, their home is their greatest asset. Home contents insurance protects you by giving you a financial safety net in the event of damage. If you have a mortgage, your lender may require a policy. However, if you don’t purchase your own mortgage, your lender can do it for you and send you an invoice. It may involve higher costs and lower coverage.
Even if you have paid off your mortgage, homeowners insurance is a good idea because it protects you from property damage costs. It also protects you from liability for injuries and property damage caused to guests by you, your family, or your pets. It can also protect you if your home becomes uninhabitable after a covered loss, and it may be worth repairing or rebuilding free-standing structures like fences or sheds that were damaged by a covered loss.
If you rent out your home, tenant policies are equally important. It may even be needed. Your landlord’s insurance covers the building itself, but the value of your personal belongings may be significant. In case of a break-in, fire, or other disaster, your renter’s policy should cover most of the costs.
It can also help you pay if you need to live elsewhere while your home is repaired, and like homeowners insurance, renters insurance offers liability protection.
Health Insurance
Health insurance is one of the most important types. Good health allows you to work, make money, and enjoy life. What if you get a serious illness or get into an accident without insurance? You may be unable to receive treatment or have to pay large medical bills. A study published in the American Journal of Public Health found that nearly 67 percent of people cited medical bills as the reason for their bankruptcy.
“Purchasing health insurance is an integral part of managing key personal financial risks,” said Harry Stout, a personal finance author and former president and CEO of an insurance company. “Not having coverage can be financially devastating to households because of the high cost of care.”
Health insurance purchased through the marketplace can even cover preventive services such as vaccinations, checkups, and some physical exams. This way you can maintain your health and well-being to meet life’s demands.
Tip
If you are self-employed or freelance, you can deduct out-of-pocket health insurance premiums when you file your tax return. You can deduct expenses equal to 7.5% of your adjusted gross income over.
Life Insurance
Many experts say life insurance should be a core part of your financial planning. But how important is it? It’s up to you.
“Life insurance needs change over time,” explains Stephen Caplan, CSLP™, a financial advisor at Neponset Valley Financial Partners. “If a person is young and single, their needs are minimal. When they have the responsibility to provide for their family, ensuring adequate protection is vital.”
What can life insurance do if you are married to a family when you die? It can replace lost income, help pay off debt, or fund a child’s college education. If you are single, this can cover funeral costs and any debts you may have left behind.
The cost depends mainly on your age and health. The younger and healthier you are, the lower the costs are likely to be. You may be required to complete a medical exam, but some companies offer no-exam life insurance that may be more expensive.
If you’re not sure whether life insurance makes sense for you, Kaplan recommends asking the following questions to consider your needs:
- What immediate financial burden will your family face after your death? Consider outstanding debts, funeral expenses, and other possibilities.
- If you died today, how long would your loved ones need financial support?
- In addition to meeting your family’s most pressing needs, would you like to have some money left over for important but less urgent expenses? For example, consider your children’s education, inheritance, or charitable giving.
You Might Want Disability Insurance, Too
“Contrary to what many people think, their house or car is not their greatest asset. It’s more about their ability to generate income. Yet many professionals are not insured against disability risks, CFP and owner of My Family Life Insurance said John Barnes. He continued, “Disability is more common than you think.”The Social Security Administration estimates that one in four 20-year-olds will develop a disability before retirement age. “Disability insurance is the only insurance that pays you benefits when you are sick or injured and unable to work. ”
It’s true that you can receive disability benefits through workers’ compensation for an injury that occurred while you were on the job. Still, Barnes warns, workers’ compensation “does not cover non-workplace injuries or illnesses, such as cancer, diabetes, multiple sclerosis, or even COVID-19.”
The good news is that disability insurance likely won’t break your budget; it usually fits most budgets. “Typically, disability insurance costs two cents for every dollar you make,” said Barnes. “Of course, premiums vary based on age, occupation, salary, and health.” If you make $40,000 a year, that’s $800 per year (about $67 per month).
In Conclusion
“Insurance plays an important but simple role: to cover financial losses in the event of a disaster,” Kaplan said.
Auto insurance, property insurance, health insurance, disability insurance, and life insurance are the main types of insurance that help you protect yourself and your assets. Talk to a licensed agent to learn how best to implement these guidelines for you.
A financial planner can advise you on other common types of insurance that should also be part of your financial plan.
Frequently Asked Questions (FAQs)
What are some optional types of insurance that are worth looking into?
Identity theft insurance covers you for any losses if someone steals your identity. Long-term care insurance will protect you if you need an assisted care facility, such as a nursing home or rehab center. Travel insurance is typically a short-term policy that you purchase only for the duration of your trip, especially if you are traveling outside the United States. It covers medical care that your insurance may not cover, as well as emergency medical transportation back to the United States if you become sick or injured abroad.
What type of an insurance is an umbrella policy?
Umbrella insurance covers your liabilities beyond those of your regular policy. If something happens outside your home that you might be responsible for, but your home or car insurance doesn't cover you, a blanket policy will fill the gap. For example, if your dog leaves home, runs into the street and bites someone, comprehensive insurance can cover the damage. Not everyone needs this type of coverage, but it is available and useful for those who may be at higher risk of lawsuits.
What types of life insurance are there?
There are a few different types, but the ones you've probably heard of are term insurance and life insurance. Insurance Information Institute. "Complete life insurance." Term life insurance pays out to a beneficiary only if the insured dies during the term specified in the policy. When you buy life insurance, benefits are paid regardless of the time of death of the insured. Life insurance also reaches the point where the policyholder can cash in part of the policy.
SOURCES
Tiny Tips uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
- National Safety Council. “Costs.”
- FindLaw. “Car Insurance Laws by State.”
- National Association of Insurance Commissioners. “Auto Insurance.”
- National Association of Insurance Commissioners. “Home Insurance,” Select “Tips and Tools.”
- National Association of Insurance Commissioners. “For Rent: Protecting Your Belongings with Renters Insurance.”
- American Journal of Public Health. “Medical Bankruptcy: Still Common Despite the Affordable Care Act,” Page 432.
- Internal Revenue Service. “Topic No. 502 Medical and Dental Expenses.”
- National Association of Insurance Commissioners. “Life Insurance,” Select “FAQs and Questions.”
- U.S. Social Security Administration. “Facts“
- Allianz Travel. “Why Buy Travel Insurance?“
- Insurance Information Institute. “Whole Life Insurance.”