Insurance: What Should You Have and What Are You Paying For?

Insurance: a massive umbrella term that can become overwhelming with all of the options available for purchase. Protecting your assets and your loved ones is an important step in creating a holistic, robust financial plan, and the right insurance policies – and adequate coverage – will help you safeguard your finances, possessions, and earnings power, the latter meaning your ability to generate income over the long term. When shopping around for insurance, the most important thing to keep in mind is to do your research. With the wide variety of insurance available, you may not even know where to start, let alone know what kind of coverage and how much of said coverage you need. To help kickstart that process, here are five main types of insurance everyone should consider, along with explanations of what each type’s price tag entails.

1. Health Insurance

In this day and age of soaring medical costs, health insurance should be a necessity. Without health insurance, routine visits to the doctor can yield hefty bills that can compound and negatively impact your financial well-being. Furthermore, if you find yourself or your loved ones with an acute, serious injury that requires specialized care and a trip to the emergency room or a hospital stay, you could be facing a stack of overwhelming medical bills in the five-figure range. Although health insurance can be expensive and a financial burden in and of itself, the financial risk you assume without coverage is exponentially higher. When you pay for health insurance, you typically obtain coverage for medical, surgical, and prescription expenses, and some policies include dental coverage as well. First, determine if your employer includes health insurance through your workplace employer-sponsored benefits package. If you do not like the health insurance options through your employer, you can shop for coverage individually and for your family via the health-insurance marketplace or by working with an insurance broker to find an off-marketplace plan that adequately fits your and your family’s needs.

2. Life Insurance

Life insurance helps you protect the people that mean the most to you and who are also financially dependent on you. With that in mind, life insurance is one of the most essential pieces of your family’s long-term financial plan. If the people you provide for will face financial hardship when you are no longer here, you should strongly consider purchasing a life insurance policy. For example, think about your annual salary and how much longer you plan to work. Now, imagine your family and loved ones trying to suddenly live without your income stream. Leveraging a life insurance policy that replaces that income amount if something happens to you is a prudent and arguably essential step to take to financially protect your loved ones and financial dependents. There are many different types and variations of life insurance, from term-life and permanent-life to whole-life, universal-life, and variable-universal-life, making it of the utmost importance to research and evaluate your options to find the policy that meets your and your family’s long-term financial needs.

3. Disability Insurance

There are possibilities in life that are worrisome to even consider and think about, and we often operate with the “that-will-never-happen-to-me” mindset; however, know that if a life-altering event does happen to you, it could be extremely financially debilitating if you are not adequately prepared. Proactively protecting your future earning power far outweighs knocking on wood that nothing will happen. For example, if something occurs that prevents you from being able to work for a certain period of time or indefinitely, you want to make sure you have a plan in place to replace that anticipated income stream that you rely on, especially if you have financial dependents like a family and loved ones. Having disability coverage will allow you to maintain your current or a comfortable lifestyle in the absence of your usual salary. There are two main types of disability insurance: short-term and long-term. Short-term coverage involves a benefit period of three to six months and is typically employer-sponsored, while long-term disability insurance lasts longer – from two years up to retirement – and is more cost-effective and is typically purchased on the private insurance market, although some employers do offer employer-sponsored options.

4. Homeowners Insurance

Also referred to as home insurance, homeowners insurance helps to cover losses and damages to your residence and the furnishings and assets within your home. It also provides liability coverage against potential damage to your house or property as a whole. Additionally, if you do ever find yourself having to live outside of your house for a certain period of time due to remodeling or damage repair, for example, certain policies will reimburse you for the rent or hotel costs you incur while you are unable to live in your home. The three levels of coverage available include actual cash value, replacement cost, and guaranteed replacement cost/value. These forms of homeowners insurance have become standardized in the U.S., and each offers a varying level of protection depending on your needs and type of residence.

5. Auto Insurance

Auto insurance is leveraged to mitigate costs of potentially financially devastating accidents, and some degree of auto insurance is mandatory in most states. Even if you are not required to have auto insurance, you should strongly consider obtaining this coverage, as accidents can lead to lawsuits that could wipe you out financially in the absence of coverage. With auto insurance, you pay a premium that varies depending on your age, gender, years of driving experience, and driving record. In exchange for paying your premium, you obtain coverage for damage to or theft of your car, any legal responsibilities you are faced with in terms of human injury and property damage, and medical costs for treating any injuries incurred.

Final Points

Put simply: You can obtain insurance for just about anything. Having insurance allows you to help remove unnecessary risk from your financial life and is one of the simplest ways to protect you and your loved ones from unforeseen financial hardship. Remember to always do your research before signing on to a policy; you want to ensure the cost of the plan is well worth the intended benefits and satisfies your desired coverage and protection.