While insurance may not be interesting, it is important. Looking at the expensive premiums and complicated policies, it can be tempting to forgo buying insurance. With a different type of insurance policy for everything, it is easy to think you’ll never need the coverage. But sometimes, disaster strikes when you least expect it, and to avoid significant financial hardships, you’re going to need insurance.
7 types of insurance policies you need
1. Health insurance
While health insurance has become increasingly complicated over the last few years, it’s essential. An unexpected medical event can cause severe financial issues and even lead to potential bankruptcy.
2. Life insurance
There are many forms of life insurance, but the most basic and least expensive is term life insurance. This pays beneficiaries a specific amount of money if you die within the time period set in the policy. Individuals should purchase life insurance based on their specific needs. For instance, someone with minors might need to purchase a higher amount of coverage to help ensure upbringing costs are covered in the event of their death.
3. Disability insurance
This insurance would replace your salary if you became temporarily or permanently disabled. There are a lot of nuances to this type of insurance regarding when you’d be able to receive compensation and under what circumstances. Make sure you’ve done your due diligence prior to purchasing.
4. Long-term care insurance
The average annual cost of a private room in a nursing home in the United States is $105,850 and is expected to jump to $142,254 by 2030.1 Will you be able to afford this? Long-term care insurance is intended to help cover the cost of nursing care. When deciding between policies, look at the assets you have outside the insurance that could possibly pay for your care.
5. Homeowners insurance
Your home might be the biggest purchase you’ll ever make – don’t you want to protect it? This insurance pays for damage to your house and often provides the necessary funds for temporary accommodations while your home is being repaired.
6. Liability insurance
This often goes hand-in-hand with your homeowners policy and covers accidents that might occur at your home. For instance, if someone slipped on your floor and broke a bone, you might have to pay their medical bills if you’re found liable for their fall. This coverage could help negate those costs.
7. Automobile insurance
Approximately 6.75 million car crashes occur in the U.S. each year.2 Accidents happen, and it’s crucial to have insurance when they do. This insurance pays in the event of a car accident and can pay for the other party’s damage if you’re found to be at fault for the accident.
7 types of insurance policies you don’t need
Not all insurance policies are created equal. Here’s some you can do without:
1. Private mortgage insurance
You pay for PMI if, when you’re buying a house, your down payment is less than 5% (sometimes, less than 20%). If you fail to make your payments, the policy pays it off – but it pays the lender, not you or your family. If you now have 20% equity in your home, ask your lender to cancel this insurance, which can cost hundreds of dollars per month.
2. Mortgage life insurance
If you die, this policy pays off your remaining mortgage balance. Unfortunately, the money goes to your lender, not your surviving family. The premiums are also high. Consider replacing this policy with a term life policy and name your spouse or children as the beneficiary.
3. Flight insurance
Think you never buy it? Check with your credit card company because some flights automatically bill you for the coverage when you buy a plane ticket. Even without this coverage, if you die in an accident, the airline is likely to compensate your family. But that’s not the point. You should have enough life insurance to provide for your family no matter your cause of death.
4. Accidental death
As noted above, your family doesn’t need more money because you die in an accident instead of an illness. And proving that you died of an accident – and not a heart attack from stress following the accident – can be difficult.
5. Cancer insurance
Similar to the above, you’ll want life and health insurance that pays, regardless of the diagnosis.
6. Credit insurance
If you die, this insurance pays off your credit cards. It’s extremely expensive and not recommended. Besides, you’re not supposed to carry balances from month to month. Even if you do, cards in your name don’t automatically become the obligation of your survivors. And if you fear they’ll become their obligation, get term life insurance, which is less expensive.
7. Children’s life insurance
Don’t buy a separate policy for each child. Instead, add a child rider to your own life insurance policies. For about $25 per year, you’ll get enough to cover final expenses. Also, don’t buy life insurance as a means of saving for college. Instead, establish a 529 college savings plan.
Need assurance? Consider insurance.
Don’t let the hefty premiums and complicated policies deter you – some insurance plans are necessary to help mitigate financial issues following an unplanned event. At the same time, don’t let the anxiety of unforeseen challenges pressure you into buying unnecessary policies that could be covered by broader plans that can benefit you more in the long run. Get the facts. Understand your options and choose the best types of insurance policies for you and your family.
1 Genworth. (2020). Cost of Care Survey. Retrieved on December 8, 2021, from https://www.genworth.com/aging-and-you/finances/cost-of-care.html
2 Bureau of Transportation Statistics. (2019). Motor Vehicle Safety Data. Retrieved December 7, 2021, from https://www.bts.gov/content/motor-vehicle-safety-data
Neither Financial Engines Advisors, L.L.C. nor any of its advisors sell insurance products. Edelman Financial Engines affiliates may receive insurance-related compensation for the referral of insurance opportunities to third parties if individuals elect to purchase insurance through those third parties. You are encouraged to review this information with your insurance agent or broker to determine the best options for your particular circumstances.