The 5 Types of Insurance Everyone Needs
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If you’re an adult, a necessary financial protection you’ll need is insurance. Insurance protects you, your investments and most importantly, those close to you. Of course, there are many different types of insurance, but the good news is that you likely don’t need every insurance product available on the market. This article explores the most common and necessary forms of insurance and what you need to know about each.
What types of insurance are there?
If you’re new to insurance, you may wonder what types of insurance there are what they are for. The most common insurance types to protect your life and key investments include the following:
- Auto Insurance
- Dental Insurance
- Disability Insurance
- Health Insurance
- Home Insurance
- Life insurance
- Pet insurance
- Renters Insurance
- Small business insurance
- Travel insurance
Types of insurance everyone needs
This list may prompt the question; “what type of insurance should I get?” Despite the lengthy list above, most people only need around five types of insurance coverage, depending on their life circumstances:
- Life insurance
- Health insurance
- Long-term disability insurance
- Auto insurance
- Home (or renters) insurance
Obviously, if you don’t own a vehicle or a home, you can disregard those. However, the average U.S. family or household will likely need the above five types of insurance policies in some form or another.
Life insurance offers a lot of benefits. First and foremost, life insurance can cover your funeral expenses when you die, which can be a huge help to your family and loved ones if you are the primary income earner. Typically life insurance is bought by parents in the event of their untimely death so that their children will have financial support in the parents’ absence.
There are two types of life insurance to consider: term life and whole life. Term life is the cheaper of the two options, but it only covers you until a certain age or time period (usually 20 or 30 years from your start date). Most people choose term life because they know their kids will be grown up by the time their policy ends and the need for financial support will expire. If you die after your term ends, your family won’t get any type of death benefit, but term insurance is intended to provide protection during the time when your dependents might need it most.
Whole life, on the other hand, covers you your entire life so your family will always be guaranteed a death benefit. Because of this, whole life is more expensive than term life. Many term life policies offer the option of switching over to whole life during a certain time frame. Some forms of whole life insurance offer investment opportunities as well, which can offset the higher premiums in the long run.
Health insurance covers your medical bills when you get sick. Out of everything on the list above, it is probably the most important type of insurance for you to have. Many people are able to get health insurance through their employer, but you can also get it through the individual market. As with any type of insurance, there are multiple levels of coverage you can purchase. The more extensive it is, the higher it costs.
Consider your needs when choosing a policy. If you have multiple health issues, and visit a doctor more than a few times a year, you may want to purchase a policy that reflects this. However, if it’s been years since you needed a visit, getting a policy with a high deductible may make more financial sense.
Long-Term Disability Insurance
The need for disability insurance is rarely top-of-mind, particularly if you are in moderate-to-good health. However, according to the SSA, about 25% of workers will become disabled in some capacity before they reach retirement. Even if it’s not forever, there may come a time where you are unable to work for months or years. In these situations, you can’t rely on health insurance because it will only cover your medical expenses.
Many employers offer disability insurance, but if yours doesn’t, you can easily purchase it elsewhere. Costs vary depending on whether you’re on your own or an employer-benefit plan, but employee disability insurance runs between $10-$36 a month (when paid for by the employer).
Before you choose one, speak with a representative about the specifics of a particular policy. Some don’t kick in for a few months, while others have caps on how long you can draw income from them. This means you may still need to have long-term savings in place even if you have disability insurance.
If you drive, car insurance is a necessity. Most states require you to have basic liability— meaning if you are found to be at fault, your insurance provider will pay for any damages you cause. Additional coverage options can be purchased, such as collision and comprehensive, depending on the level of protection you prefer.
How much you spend on auto insurance depends on a lot of factors, such as your age, where you live and how old your car is. Shop around for the best rates and coverage, because insurance providers don’t weigh each variable the same way. Check out this guide to gauge the average cost the top providers are currently charging, but keep in mind that you may receive a different quote from what’s listed because of your specific life factors.
If you want to learn more, our Auto Insurance Guide goes in depth on the various types of policies you can purchase.
Home insurance is generally required by lenders, so if you don’t have a mortgage, you’re not legally required to have it. Nevertheless, it is highly recommended, since your home is more than likely your most valuable investment.
Home insurance protects your structure and belongings, should a damaging loss occur. For example, if strong winds knock down a tree which in turns falls on your home, your insurance would cover the cost of repairs. As with car insurance, a basic plan also gives you liability protection — meaning if someone gets hurt while on your property, your coverage would pay for any damages or medical costs.
There are a wide variety of additional coverage options you can purchase with your home insurance package, so it’s best to speak to an insurance representative about your various needs. To learn more about home insurance, check out our beginners guide.
Alternatively, if you are just renting, renters insurance provides similar protection to your belongings in the event they are damaged or stolen.
- Life insurance protects your family in the event of your untimely death.
- Health insurance is the most commonly-used form of insurance on a regular basis.
- Long-term disability insurance provides valuable security for your financial future, regardless of your medical history.
- Car insurance offers more protection than just the state-required level of basic protection.
- Home insurance offers liability protection as well as property and personal belonging protection.
Insurance policies protect both your immediate and long-term interests. It benefits you, your loved ones as well those around you. When purchasing insurance, consider what role you play for each member of your family. Life insurance, disability and health insurance are all crucial ways to ensure they are provided for financially, should the worst happen.
What you need and what you can afford will impact what you purchase. When weighing the importance of each type of insurance, speak to an insurance representative to gain better insight into what fits your unique life needs. This research is critical to knowing what will be the best solution for your situation.