Fun is like life insurance;
the older you get, the more it costs.
Frank McKinney Hubbard
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 in debt. Insurance can offer peace of mind and you can find an insurance policy to cover almost anything imaginable but these are some of the essential to be included in your financial planning
1. Health Insurance
is one of the most important types of insurance to have. Having good health allows you to work, earn money and otherwise enjoy life. If you develop a serious illness or have an accident without being insured you may find yourself unable to receive treatment or even find yourself in debt to the hospital.
Many employers provide health insurance benefits to full-time and even some part-time employees. If you do not have health insurance coverage this is the first place to check as it will generally be the most affordable. If you’re married you may both be able to receive coverage under one of your employers plans. When both employers make health insurance available a close comparison of co-pays, deductibles, premium costs, network coverage and covered expenses will determine which plan yields the most benefits.
If your employer does not offer health insurance or you’re self-employed then the federal healthcare marketplace is a good starting point; alternately you can contact insurers directly to see what type of coverage is available in your state. Use the same criteria as above to evaluate and compare policies costs and coverage.
While purchasing your own health insurance may be more expensive if you’re self-employed the premiums you pay out of pocket do qualify as a tax deduction.
2. Life Insurance
is important if you are married and/or have children or own assets, but even single people can benefit from having life insurance. It can be used to pay burial costs, replace lost income of the deceased, help to pay any lingering debts after your death or pay for your children’s college education.
Many employers offer basic group life insurance as a benefit and some even allow you to purchase additional coverage at a very affordable rate. Outside of employer plans there are hundreds of insurance companies that can provide the right coverage for you.
Next thing to consider is whether to purchase Term or Permanent life insurance. Term insurance covers you for a specific time period, typically 5-30 years. Permanent insurance covers you for your entire life, as long as premiums are paid. Of the two, term life insurance tends to be more flexible and less expensive but if you’re looking for an investment component you may prefer permanent coverage. Either coverage should be funded to 15-20 times annual salary.
With most types of life insurance your ability to get covered depends on your age and health profile. The younger and healthier you are, the lower the cost is likely to be but be prepared to take a brief medical exam as part of the application process. There are some insurance companies that offer no-exam term life policies. While this may be easier to apply for by only completing a brief health questionnaire, this type of coverage could carry higher premiums.
3. Property Insurance
is one type of policy that for most people that is actually mandatory to have when you have a mortgage. The premium often times is rolled into the mortgage payment. For many people, their home is their greatest asset so it is vitally important to adequately protect it.
If you rent instead of own, a renters insurance policy is just as important. Your belongings inside the dwelling can add up to a significant amount of money. In the event of a burglary, fire or natural disaster you should be able to at least have a policy that can cover most of the replacement costs. Both homeowners and renter’s insurance can also protect you against personal liability if someone is injured at your home.
Like any other type of insurance, take the time to compare coverage and premiums. Homeowner’s insurance, for instance, may not cover you in the event of flood damage or damage from an earthquake. If you live in an area that’s prone to those types of events you may need to supplement your policy with additional natural disaster coverage.
4. Auto Insurance
is another type of policy that is often required. Most states require by law that you have basic liability coverage. If you buy a car with a loan you may also be required to add collision coverage to your policy. If you’re in an accident liability insurance covers damages to the other vehicle while collision covers damage to yours.
The most common reason to have auto insurance is to cover the replacement of an expensive asset. Like a home, automobiles can be quite expensive and if it gets damaged you want to be able to repair or replace it. But there is more to auto insurance than just covering the car itself.
Most automotive insurance policies cover bodily injury or death of another person in an incident that you are legally responsible. While it generally pays for medical expenses related to the incident it can also cover legal defense costs. You will also generally find medical payment coverage that pays for medical treatment for you and your passengers during an accident regardless of who was at fault. You can also include rental car coverage in your policy in the event that an accident leaves your car undrivable.
The more coverage you add to your policy, the higher the premium costs may be but, conversely, you should be able to lower those premium costs by raising your deductibles.
5. 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.
6. Long-term care insurance
covers a range of services like nursing home care and in-home help with basic personal tasks like bathing, grooming and eating. Usually, long-term care refers to any ongoing assistance for those who have a chronic illness or disability. It’s expensive, and long-term care costs are not generally covered by Medicare.
So who really needs long-term care? To protect your retirement savings from the expenses of long-term care, get long-term care coverage no later than age 60. Remember that while you’re not likely to need long-term care before then, many factors—like your health and family history—go into your decision when to buy long-term care insurance—and how much you’ll pay for it.
7. Identity Theft Protection.
According to a 2017 Identity Fraud Study released by Javelin Strategy and Research, identity thieves stole $16 billion from 15.4 million US consumers last year. Cyber crime and identity fraud are real threats—even if you’re careful about protecting your personal information. National retail stores are under constant attack by industrious hackers who break into their payment systems, leaving millions of people vulnerable to theft.
Think about it: With a few important bits of information about you, criminals have all they need to ruin your finances by taking out a mortgage in your name, receiving medical care or filing a false tax return.
Cleaning up an identity fraud situation could take years to handle on your own, so make sure your insurance includes restoration services that assign a qualified counselor to clean up the mess for you.
8. An Umbrella Policy
is a type of insurance that adds an extra layer of protection for you and your assets when you need coverage that exceeds the limits of your homeowners or auto insurance. For example, if you’re at fault for a multiple-vehicle accident, medical bills and property damages could quickly add up to more than your auto insurance will cover. If you’re sued for the difference, your savings, your home and even your future wages could be at stake!
You can protect yourself from a situation like this with a personal liability umbrella policy. In fact, it is recommended to have an umbrella policy for anyone with a net worth of $500,000 or more. For a few hundred dollars a year, an umbrella policy can increase your liability coverage from the standard $500,000 to $1.5 million.
One Final Point to Remember
One word of caution: Stay away from gimmick policies like cancer insurance, accidental death or anything that packages your coverage with investments like universal life. These types of insurance policies are just a way for the seller to make extra money off you. You need an agent who’s on your side—not the side of the insurance company.
An industry expert will work with you to make sure you have the policies that fit your life now and help you anticipate the coverage you’ll need for the future. Plus, if you ever have to file a claim, you’ll have an advocate on your side who will guide you through the process.
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