5 Types of Insurance Policies Everyone Needs

While there's no way to predict or prevent what unforeseen events will impact our lives in the future. Insurance is meant to safeguard us, the right insurance plans can help provide financial protection. However, there are numerous types of insurance policies and many financial experts will say you need to have them all. It can be difficult to determine what insurance you really need.

Insurance offers peace of mind against the unexpected. You can find a policy to cover almost anything, but some are more important than others. It all depends on your needs. Meanwhile, there are an overwhelming amount of insurance options on the market. Although thorough coverage is important, it is also possible that you can have too much coverage. Moreover, paying too much more money for insurance could leave also leave you financially vulnerable in other areas, like your emergency fund or retirement savings.

However, purchasing the right type and amount of insurance is always determined by your specific situation. Factors such as children, age, lifestyle, and employment benefits play a role when you are building your insurance portfolio. But how do you know what types of insurance are absolutely necessary?

Types of Insurance Policies Everyone Needs

There are, however, five types of insurance that most financial experts recommend we all have: life, home, health, auto, and long-term disability. Keep on reading as we will briefly discuss each of them below.

1. Life Insurance

Life insurance comes in two basic types: the traditional whole life and term life. The most basic — and least expensive— is term life insurance, which pays a specific amount if you die within the time frame of the policy. Whole life on the other hand can be used as an income tool as well as an insurance instrument. As long as you continue to pay the monthly premiums, whole life insurance covers you until you die.

However, the greatest benefits of life insurance include the ability to cover your funeral expenses and provide for those you leave behind. This is especially important if you have a family that is dependent on your salary to pay the bills. Meanwhile, many experts say that life insurance should be a central part of your financial plan. But how crucial is it really? The answer is - it depends on you.

Therefore, when estimating the amount of life insurance coverage you need, note to factor in not only funeral expenses but also daily living expenses. These may include mortgage payments, outstanding loans, credit card debt, taxes, child care, and future college costs.

2. Health Insurance

This is one of the most important types of insurance policies. Health insurance covers your necessary medical costs, from doctor’s appointments to surgeries. Along with coverage for illnesses and injuries, health insurance covers preventative care, such as monthly check-ins and tests. Your good health is what allows you to work, earn money, and enjoy life. What if you were to develop a serious illness or have an accident without being insured? You might find yourself unable to receive treatment or forced to pay large medical bills.

Statistically, you and your family are just one serious illness away from bankruptcy, according to a study published by the American Journal of Public Health in 2019. In the Journal's survey of more than 900 Americans who filed for personal bankruptcy between 2013 and 2016, nearly 67% of people felt their medical expenses—from bills, income loss due to illness, or both— were part of the reason for their bankruptcy.

Furthermore, having adequate health insurance coverage is essential to your continued health and welfare, and crucial to maintaining your financial well-being as well. "Out-of-pocket costs from medical bills, such as routine check-ups, unexpected hospital visits, or surgery, are very expensive. Moreover, every adult should have health insurance. Whereas children are usually covered under one of their parent's plans.

3. Home Insurance

For many people, a home is their greatest asset. Whether you own a home or rent an apartment, insurance protection is crucial. Homeowners insurance covers your home against damage and theft, as well as other perils such as damage to a visitor's property, or any costs if someone was injured on your property. It pays for partial damage or the complete destruction of your home. Often, it also covers the damaged contents of your home, as well as the funds necessary to rent accommodations while your home is being repaired.

Moreover, a home is likely the biggest purchase you will ever make, so this is a very important type of insurance to have. Be sure to look at the details, though. Will the policy cover what you paid for the home or the price of what it would take to rebuild it? These could be very different numbers.

Furthermore, if you have a mortgage, your lender probably requires a policy. But if you don’t buy your own, your lender can buy it for you and send you the bill. This may come at a higher cost and with less coverage. Home insurance is a good idea even if you’ve paid off your mortgage.

However, if you're a renter, you also need coverage. A renters policy is just as important Structural damage is the responsibility of your landlord, but renters insurance will protect your personal possessions.

4. Auto Insurance

This is also one of the most important types of insurance policies, especially if you drive. If you own a car, you are already discreetly familiar with automobile insurance. That’s because it’s one of the most important types of coverage you can have. Not only is it required in most states, but car accidents are expensive.

In 2019, around 4.4 million people were involved in car crashes serious enough to require medical attention. A car accident could cost you more than $12,000 even without any injuries; it cost you more than $1.7 million if a crash is fatal. However, these costs come from medical expenses, vehicle damage, wage and productivity losses, and more.

Moreover, while not all states require drivers to have auto insurance, most do have regulations regarding financial responsibility in the event of an accident. Auto insurance covers legal fees, injury or death, and property damage to others when you are legally responsible. Meanwhile, states that do require insurance conduct periodic random checks of drivers for proof of insurance. If you do not have coverage, the fines can vary by state and can range from the suspension of your license to points on your driving record.

Furthermore, some states also require drivers to carry personal injury protection (PIP) and/or uninsured motorist coverage. These types of coverages pay for medical expenses related to the incident for you and your passengers, no matter who is at fault. This also helps cover hit-and-run accidents and accidents with drivers who don’t have insurance.

5. Long-Term Disability Coverage

Long-term disability insurance is the one type of insurance most of us think we will never need. Contrary to what many people think, their home or car is not their greatest asset. Rather, it is their ability to earn an income. Yet, many professionals do not protect against the chance of a disability. Moreover, a disability happens more often than people think.

According to statistics from the Social Security Administration, one in four workers entering the workforce will become disabled and will be unable to work before they reach the age of retirement.

Most major corporations offer some form of disability insurance to their employees, but many smaller businesses do not. This type of coverage is intended to replace your salary if you were to become temporarily or permanently disabled. Disability insurance is similar to life insurance because it provides financial coverage if something happens to you. If you get injured and aren’t able to work, disability insurance will reimburse you for lost income.

Many employers offer both short- and long-term disability insurance as part of their benefits package. This would be the best option for securing affordable disability coverage. However, it is true that you have disability benefits through worker's compensation for injuries that happen while you're on the job. Keep in mind worker's compensation does not cover off-the-job injuries or illnesses like cancer, diabetes, multiple sclerosis, or even COVID-19.

Final Thoughts on the Types of Insurance Policies Everyone Needs

Insurance plays an important but simple role: It replaces economic loss in the event of a catastrophe. Moreover, most experts agree that auto, property, health, disability, and life are the top types of insurance you must have, that help you protect yourself and your assets. However, you should also think about your needs. Talk with licensed agents to find out the best ways to make these policies work for you. Financial planners can provide advice about other common types of insurance that should also be part of your financial plan.

Furthermore, you should always check with your employer first for available coverage. If your employer doesn't offer the type of insurance you want, obtain quotes from several insurance providers. Those who offer coverage in multiple areas may provide some discounts if you purchase more than one type of coverage.

In conclusion, when buying insurance, always make sure you can afford it. Insurance is meant to protect you and your finances, not hurt them. But remember that while insurance is expensive, not having it could be far more costly.