We can’t prevent the unexpected from happening, but sometimes we can protect ourselves and our families from the worst financial fallout. Many types of insurance are available, but no one wants to spend more than necessary.
Selecting the right type and amount of insurance should always be based on your specific situation. Factors such as children, age, lifestyle and benefits play a role.
Nevertheless, there are four types of insurance that most financial experts recommend to everyone: life, health, automobile and long-term disability.
Key points to remember
- Life insurance will take care of your survivors.
- Health insurance protects you from catastrophic bills in the event of an accident or serious illness.
- Long-term disability protects you and yours against unexpected loss of income.
- Auto insurance saves you from the financial burden of a costly accident.
4 Types of Insurance Everyone Needs
1. Life insurance
Life insurance protects your family if you die unexpectedly. This is especially important if your family depends on your salary.
Industry experts suggest a policy that pays out 10 times your annual income. But not everyone can afford the cost. When estimating how much life insurance you need, consider funeral expenses. Then calculate your family’s daily expenses. These can include mortgage payments, outstanding loans, credit card debt, taxes, childcare, and future school fees.
Don’t forget to consider any other source of family income. According to a 2021 study by LIMRA, formerly known as the Life Insurance and Market Research Association, more than half of American households depend on dual income. The study also found that a quarter of families would experience financial hardship within a month of the death of an employee.
The two main types of life insurance are traditional whole life insurance and term life insurance.
- Whole life can be used as an income tool as well as an insurance instrument. As long as you continue to pay monthly premiums, your whole life insurance policy covers you until your death.
- Term life covers you for a set period of time.
There are other considerable differences between the two types of insurance, so you may want to seek the advice of a financial expert before deciding which is best for you. Factors to consider include your age, occupation and number of dependent children.
2. Health insurance
Only about 9.2% of the US population lacked health insurance coverage in 2021, the Centers for Disease Control (CDC) reports in its National Center for Health Statistics. More than 60% obtained their coverage through an employer or in the private insurance market, while the rest were covered by government-subsidized programs, including Medicare and Medicaid, benefit programs for veterans and the federal market commonly referred to as Obamacare.
Having medical insurance means you have no reason to avoid an annual wellness visit or a trip to the doctor for the occasional ailment. And you won’t be stuck with a huge bill if you or a family member has an accident or develops a chronic illness.
If your budget is very tight, even a minimal policy is better than none. If your income is low, you may be one of the 80 million Americans eligible for Medicaid. If your income is moderate but does not cover insurance coverage, you may qualify for subsidized coverage under the federal Affordable Care Act.
The best and least expensive option for salaried employees is usually to participate in your employer’s insurance program, if your employer has one. The average annual premium cost for the employee in an employer-sponsored healthcare program was $7,739 for individual coverage and $22,221 for a family plan in 2021, according to research published by the Kaiser Family Foundation.
3. Long Term Disability Coverage
Long-term disability insurance is the one type of insurance most of us think we’ll never need. Yet, according to Social Security Administration statistics, one in four workers entering the workforce will become disabled and will not be able to work until they reach retirement age.
Often, even workers with excellent health insurance, a good nest egg, and a good life insurance policy don’t prepare for the day when they might not be able to work for weeks, months, or ever again. Although health insurance pays for hospitalization and medical expenses, you are still left with any expenses covered by your paycheck.
Many employers offer both short-term and long-term disability insurance as part of their benefits package. This would be the best option for getting affordable disability coverage.
If your employer doesn’t offer long-term coverage, here are some things to consider before purchasing insurance on your own:
- A policy that guarantees replacement income is optimal. Many policies pay 40% to 70% of your income.
- The cost of disability insurance depends on many factors, including age, lifestyle, and health. The average cost is 1% to 3% of your annual salary.
- Before you buy, read the fine print. Many plans require a three-month waiting period before coverage takes effect, offer a three-year maximum coverage, and have important policy exclusions.
4. Car insurance
Despite years of improving auto safety, an estimated 31,720 people died in traffic crashes on U.S. roads and highways in the first nine months of 2021, according to the National Highway Traffic Safety Administration.
Almost all states require drivers to have auto insurance, and the few that still don’t hold drivers financially responsible for any damages or injuries they cause.
Auto insurance will cover the expenses and help protect you against any litigation that may arise from the accident. It also protects your vehicle against theft, vandalism or a natural disaster like a hurricane.
As with all insurance, your personal circumstances will determine the cost. Compare multiple quotes and the coverage provided, and periodically check to see if you qualify for a lower rate based on your age, driving record, or area where you live.
Most experts agree that life insurance, health insurance, long-term disability insurance, and auto insurance are the four types of insurance you need to have. Always check with your employer first. Employer coverage is often the best option.
For your other insurance needs, get quotes from several providers. Some offer discounts if you purchase more than one type of coverage.
If you are unable to afford private health insurance, check to see if you are eligible for subsidized insurance under the Affordable Care Act.