Accidents happen. You never know what life will throw at you, and a single misfortune could be devastating.
That’s why you need insurance to be part of your financial plan—to safeguard your health, earning power, and possessions.
But with so many types of insurance out there, how do you know which ones are worth it and which ones you don’t need?
This article will help answer that question by going over the 5 types of insurance everyone needs and why.
Let’s get started!
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 they can get expensive fast. In 2017, the average cost of an ER visit was $1,389. And many chronic conditions are much more than that!
Most people get health insurance through their employer, but if you’re self-employed or unemployed you can also get it through the federal healthcare marketplace at healthcare.gov. Depending on how much money you make, you may even qualify for a government-subsidized plan.
Otherwise, you can always get 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 out there. For example, you could get a high-deductible plan coupled with a health savings account (HSA). This has many benefits.
For one, a high-deductible plan will lower your premiums (though it will also raise your deductible so you’ll pay more out of pocket for each doctor visit). But it also qualifies you for an HSA where you can set aside money to pay for medical bills. The advantage of an HSA is that it is highly taxed efficient: You can deposit money into it tax-free (i.e. deduct it from your taxes), invest the funds in it tax-free, and withdraw the funds from it tax-free. It’s a triple whammy!
2. Auto 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’s required in almost every state.
- Uninsured/underinsured motorist (UM) coverage—This pays for any medical expenses, lost wages, pain, or suffering you or your passengers experience if hit by an uninsured driver.
- Personal injury protection (PIP)—This covers any injuries, lost wages, or rehabilitation costs for you and your passengers, no matter who is at fault for the accident.
- Medical payment coverage—This helps pay for any medical expenses (usually between $1,000 and $5,000) regardless of fault.
- Collision coverage—This covers damage to your car, no matter who is at fault.
- Comprehensive coverage—This covers any damage to your car or loss that falls outside of a collision, including theft and damage from floods, hail, fire, vandalism, falling objects, and animal strikes.
- Learner driver insurance—This is flexible coverage for those working on getting their driver’s license.
You don’t need all types of auto coverage, but you need to have liability coverage at a minimum, and preferably more. Talk to an auto insurance agent to determine what’s best for your situation.
3. Life insurance
Life insurance protects those who are financially dependent on you (e.g. your spouse and children) if you die. Since all of us will die at one point, this is incredibly important to have. And yet, only 54% of Americans have a life insurance policy.
Life insurance can also help pay for the cost of your funeral and burial, which otherwise often put an unexpected financial burden on your family.
There are two types of life insurance: term life insurance and whole life insurance. Term insurance is for a set period of time (e.g. 10, 20, or 30 years) and is usually more affordable, while whole life insurance provides lifelong coverage and has a cash value component that you can withdraw as part of 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 you dying is lower. So look into some life insurance policies today!
4. Long-term disability insurance
Just as you never know when you’ll die, you never know when you’ll get in a serious accident that will leave you disabled either.
This is why you need long-term disability insurance. Most employers will cover 3 to 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 anywhere from 40% to 70% of your income.
Besides Social Security, you have two main options for disability insurance: a group policy through your employer or an individual policy. Keep in mind that neither policy type limits coverage to injuries that happen at work (as worker’s compensation does). They cover injuries that happen outside of work, too.
5. Homeowner’s or renter’s insurance
Finally, you need homeowner’s or renter’s insurance. Homeowner’s insurance helps repair or replace your home should something happen to it, while renter’s insurance just covers your possessions inside your home (since you don’t own the property).
That said, you should look for a comprehensive homeowner’s insurance policy that covers damage, loss of possessions, and the cost of temporarily living somewhere else while your home is rebuilt or repaired.
If you financed your home (i.e. you have a mortgage), your lender will probably require you to get homeowner’s insurance. And if you rent, your landlord may require you to get renter’s insurance as well.
Final thoughts
At the end of the day, the point of getting insurance is to mitigate risk. You don’t want to put yourself in the impossible position of getting a bill you can’t pay or leaving loved ones in financial trouble.
So shop around for insurance policies in each of the five areas listed above. Compare prices, coverage, benefits, and reviews online on sites like Policygenius.com. It can take a long time to find the right policy, but it’s well worth it. And you can always get an insurance broker to help you know your options and make a well-inform
