Insurance provides peace of mind against surprises. You can find a policy that covers almost anything, but some are more important than others. It all depends on your needs.
1. Auto Insurance
Car insurance is essential if you drive. It’s required in most states, but paying for the damages from car accidents can be costly. According to data from 2019, a car accident can cost over $12,000 even with no injuries; it can cost over $1.7 million if the accident is fatal. These costs come from medical expenses, vehicle damage, lost wages and productivity, and more.
Most states require you to have basic car liability insurance to cover legal fees, injury or death, and property damage to others when you are legally responsible. Some states also require you to carry personal injury protection (PIP) and/or uninsured motorist coverage. These coverages help pay for medical expenses related to the accident for you and your passengers, regardless of who is at fault. This also helps cover hit-and-run accidents and collisions with drivers who are uninsured.
Note: If you are buying a car with a loan, you may also need to add comprehensive and collision coverage to your policy to cover repair costs for your vehicle due to car accidents, theft, vandalism, and other risks. This is especially important if repairing or replacing your car would create a financial hardship for you.
2. Home Insurance
For many people, a home is their biggest asset. Home insurance protects you by providing a financial safety net when damage occurs. If you have a mortgage, the lender will likely require you to have a policy, but if you do not purchase your own policy, the lender can buy one on your behalf and bill you for it. This can be more expensive and provide less coverage.
Home insurance is a good idea even if you have paid off your mortgage, as it protects you from expenses related to property damage. It also protects you from liability for injuries and property damage that your guests cause due to you, your family, or your pets. It can also cover you if your home becomes uninhabitable after a covered claim and can pay for repairs or rebuilding of detached structures, like fences or barns, that were damaged due to a covered claim.
If you rent your home, tenant insurance is just as important. It may even be required. The landlord’s insurance covers the building itself, but the value of your personal belongings can add up to a lot of money. In the event of theft, fire, or another disaster, a renter’s policy should cover most costs.
It may also help pay if you have to stay somewhere else while your home is being repaired, and like home insurance, it provides liability protection.
3. Health Insurance
Health insurance is one of the most important types of insurance. Good health is what allows you to work, earn money, and enjoy life. What if you were to suffer 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. A study published in American Public Health found that about 67% of people felt their medical expenses were part of the reason for their bankruptcy.
Health insurance can cover preventive services like vaccinations, check-ups, and certain screenings. This way, you can maintain your health and well-being to meet life’s demands.
Tip: If you are self-employed or a freelancer, you can deduct the premiums you pay for your health plan out of pocket when filing your tax return. You can deduct expenses that exceed 7.5% of your adjusted gross income.
4.
Life Insurance
Many say that life insurance should be a fundamental part of your financial plan. But how important it really is depends on you.
Life insurance can replace lost income, help pay off debts, or cover your children’s education costs. If you’re single, it can cover funeral expenses and pay off any debts you leave behind.
The cost primarily depends on your age and health. The younger and healthier you are, the lower the cost will be. You may need to undergo a medical examination, but some companies offer life policies without a medical exam, which might be more expensive.
If you’re uncertain whether a life insurance policy would be beneficial for you, Caplan suggests asking yourself these questions to consider your needs:
- What immediate financial expenses will your family face upon your death? Think of outstanding debts, funeral costs, and other potential expenses.
- How long will your family need financial support if you were to pass away today?
- In addition to covering your family’s most urgent needs, would you like to leave money for important but non-urgent expenses? Consider your children’s education, inheritance, or charitable gifts, for example.
You may also need disability insurance. John Barnes, CFP and owner of My Family Life Insurance, says, “Contrary to what many believe, it’s not the house or car that is their greatest asset. It’s their ability to earn income. However, many professionals do not insure their opportunity for disability.” The Social Security Administration estimates that disability will strike one in four people in their twenties before they reach retirement age. “Disability insurance is the only type of insurance that will pay you a benefit if you are sick or injured and unable to perform your job.”
It’s true that you have disability benefits through workers’ compensation for injuries that happen while on the job. However, Barnes warns that workers’ compensation “does not cover injuries or illnesses that occur outside the workplace such as cancer, diabetes, multiple sclerosis, or even COVID-19.”
The good news is that disability insurance often doesn’t cost much money; it can fit most budgets. Barnes says, “Typically, disability insurance premiums cost two cents for every dollar you earn.” If you make $40,000 a year, that equates to $800 a year (around $67 a month).
Conclusion
Caplan states, “Insurance plays an important yet simple role: it replaces the economic loss in the event of a disaster.”
Car, property, health, disability, and life insurance are the most important types of insurance that help you protect yourself and your assets. Talk to licensed agents to learn the best ways to make these policies work in your favor.
Financial advisers can provide guidance on other common types of insurance that should be part of your financial plan.
Frequently Asked Questions
What are some optional types of insurance worth considering?
Identity theft insurance covers any losses you may incur if someone steals your identity. Long-term care insurance covers if you need an assisted living facility, such as a nursing home or rehabilitation center. Travel insurance is typically a short-term policy you purchase just for a trip, especially if it’s outside of the United States. Travel insurance includes coverage for medical care that your insurance policy may not cover and emergency medical transportation back to the U.S. if you become ill or injured while traveling.
What is an umbrella insurance policy?
Umbrella insurance covers liability that exceeds your standard policies. If something happens outside your home that you may be liable for but your homeowners or auto insurance policy won’t cover you, an umbrella insurance policy will fill that gap. For example, if your dog runs out of the house and bites someone, the umbrella insurance policy could cover the damages. Not everyone needs this type of insurance, but it is available and beneficial for people who may be more at risk of lawsuits.
What
What types of life insurance are available?
There are a few different types, but the ones you may have heard of are term life insurance and whole life insurance. Term life insurance pays out to beneficiaries only if the insured person dies within the specified period in the policy. When purchasing whole life insurance, it pays out regardless of when the insured person dies.
Source: https://www.thebalancemoney.com/types-of-insurance-policies-you-need-1289675
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