5 Types of Insurance You Absolutely Need?

Insurance is like a life jacket. It’s a bit of a nuisance when you don’t need it, but when you do need it, you’re more than thankful to have it. Without it, you could be one car wreck, illness or house fire away from drowning—not in the ocean, but in debt.

But for something so essential to our financial well-being, insurance is a complicated—even uncomfortable—topic. So we’ve boiled your options down to the five types of insurance policies you can’t go without.

1. Auto Insurance

Never drive around uninsured—not just because it’s against the law, but also because the Insurance Information Institute reports the average loss per claim on cars is around $4,900. Imagine having to pay that kind of money out of pocket! There are several options to choose from when it comes to auto insurance, so there’s no reason to go without it:

• Liability coverage – If you’re responsible for an accident, your liability coverage will cover the costs of any injuries or property damage caused in the collision. Most states require you to carry a minimum amount of coverage, so check with your insurance agent to understand your basic requirement.
• Collision coverage – This covers the cost to repair or replace your car if it’s damaged or destroyed in a wreck.
• Comprehensive coverage – This level of insurance covers your losses that aren’t caused by a wreck such as theft, vandalism, flood, fire and hail.

2. Homeowners / Renters Insurance

Be sure your homeowners policy includes extended dwelling coverage. Extended dwelling coverage adds an extra layer of protection above your policy limits.

With extended dwelling coverage, the insurance company will replace or rebuild your property even if the cost exceeds your policy’s coverage. There is a limit to how much they’ll pay, however—usually 20–25% above the amount you’re insured for unless you opt for more coverage. Keep in mind, the higher your home’s value, the higher the need for extended dwelling coverage.

Another note about homeowners insurance: Check with your agent about what your policy covers and what it doesn’t.

• Flood Insurance – Most homeowners don’t know that flood insurance is excluded from their policies. Flood insurance is also different from water backup protection. Ask your agent to go over the details with you.
• Earthquake Coverage – Depending on where you live in the country, earthquake coverage might not be included. If you need it, check with your agent to include it.

If you’re a renter, you’re not off the hook for insurance. Without renters insurance, it’s up to you to replace your belongings if they are lost in a fire, flood, burglary or some other disaster. A good independent insurance agent can walk you through the steps of covering the basics of both homeowners and renters insurance.

3. Health Insurance

Medical debt contributes to nearly half of all bankruptcies in America according to the Kaiser Family Foundation. If you’re uninsured, you’re leaving yourself vulnerable to potential financial catastrophe. One unexpected major medical emergency could amount to hundreds of thousands of dollars of expenses. Don’t put yourself in that situation.

The high cost of medical insurance isn’t an excuse to go without coverage—even if you don’t go to the doctor often. One option is a high-deductible health insurance plan combined with a Health Savings Account (HSA). With a high-deductible plan, you’re responsible for more of your up-front healthcare costs, but you’ll pay a lower monthly premium.

A high-deductible health plan qualifies you to open an HSA—a tax-advantaged savings account specifically for paying medical expenses. Speak to an independent insurance agent about high-deductible health plan options you can combine with an HSA. Other HSA benefits include:

• Tax deduction. You can deduct HSA contributions from your gross pay or business income. In 2017, the tax deduction is $3,400 for singles and $6,750 for married couples.
• Tax-free growth. You can invest the funds you contribute to your HSA, and they grow tax-free to use now or in the future.
• Tax-free withdrawal. You can use the money tax-free on qualified medical expenses like health insurance deductibles, vision and dental expenses.

Some companies now offer high-deductible health plans with HSA accounts as well as traditional health insurance plans. Compare your options and see if a high-deductible plan could end up saving you money.

4. Long-Term Disability Insurance

Long-term disability insurance protects you from loss of income if you are unable to work for a long period of time due to an illness or injury. Don’t think a permanent disability could sideline you and your ability to work? According to the Social Security Administration, just over one in four of today’s 20-year-olds will become disabled before reaching age 67.

Those odds are too high for you to skimp on long-term disability insurance. If you’re in your prime wage-earning years, a permanent disability could potentially derail your dreams of home ownership or paying for your kid’s college.

Bottom line: make sure you’re covered. Many companies offer long-term disability insurance to their employees, so start there.

As you look into your options, you’ll also find short-term disability insurance designed to fill in income gaps caused by an illness or injury that keeps you out of work for three to six months. That’s insurance you can skip—especially when you have a fully funded emergency fund to cover your needs.

5. Life Insurance

Many of us take life insurance too lightly. The Insurance Information Institute reports that 30% of Americans carry no life insurance. Think about it: If you were to pass away unexpectedly, how would your spouse pay for monthly expenses without your income? In the dark moments of grief, the last thing your spouse should worry about is surviving financially in your absence. With a term life insurance policy for 10–12 times your yearly income, your family won’t have to worry about making ends meet, losing their home or changing their college plans if you’re not there to provide for them.

Make this a priority. Talk to an independent insurance agent about term life insurance today. It’s affordable and will provide priceless security for your family. When you shop for life insurance, don’t forget, term life insurance is always a much better deal than whole life insurance.

What about singles with no dependents? If you have a ton of debt and no savings, consider a small term life insurance policy. A healthy 30-year-old can easily find an affordable policy that will at least pay off your debt and cover your burial expenses.

If you’re debt-free and have enough cash to pay for your burial, you can hold off on life insurance, but why would you? The younger you are, the more affordable term life insurance is, so there’s no reason to wait until you have a family to get insured.