It’s a dangerous world out there. Every time we leave the house, we risk getting struck by lightning, robbed, infected by a deadly virus, and probably about a million other things.
Not that I’m trying to scare you or anything.
I don’t advocate spending your entire life hiding in your bed to minimize the statistical likelihood of something awful happening to you. Fortunately, the modern world has given us a much more viable (and enjoyable) alternative: taking out insurance policies.
But with a seemingly never ending list of insurance types to choose from, you might be wondering where to start.
Life Insurance
Life insurance works a little differently from other insurance types, so it’s often misunderstood. Generally, the person who takes out an insurance policy is the one to benefit from an insurance payment.
Since life insurance only comes into effect when the policyholder dies, it doesn’t quite follow the same structure.
A life insurance policy pays the policyholder’s dependents, usually a partner and/or children, to give them a financial safety net after their provider’s death.
Who Needs It
Are you alive? Do you have people who depend on you financially? Are you yet to achieve immortality?
If you answered yes to all the above questions, then you need life insurance — no matter how healthy you are now.
Even if you don’t have dependents, it might still be worth taking a life insurance policy out now. If you’re a young adult, there’s a good chance you’ll end up starting a family or caring for elderly parents later in life.
How It Works
When it comes to taking out your policy, there are two main choices: term and whole life insurance.
Term life insurance requires you to sign up for your policy for a specific length (e.g., 10 or 30 years). You’ll pay the same amount of money in premiums each year throughout your policy duration, regardless of how much your health deteriorates — meaning young people can get a great price.
Whole life insurance will last for your entire life rather than a set term, and the premiums will also remain the same throughout the duration of your policy.
It’s almost always more expensive than term life insurance. However, there’s one major benefit: you’ll get a guaranteed cash value that can ultimately be used as a retirement fund if you wish.
Health Insurance
Few things in life are more important than our health.
If you don’t want to put yourself in a position where you can’t pay the medical bills for crucial treatment or end up in serious debt due to said treatment, health insurance is a must.
Who Needs It
Since nobody is safe from disease and injury, we all need health insurance. However, some people are fortunate enough to have employers that offer them a discounted insurance policy.
The only other exceptions are over-65s (who usually qualify for Medicare) and those on very low incomes (who can sometimes receive Medicaid).
Not in either of these groups? You need a health insurance policy.
How It Works
Health insurance can be pretty complex, and there are few elements to consider when deciding which policy to take out.
Here are the main considerations:
- Monthly premiums — how much you’ll pay each month
- The deductible — how much you’ll need to pay for your treatment
- Co-payment — how much the insurer covers per expense
- Co-insurance — the percentage you pay for health expenses
If you’re trying to figure out the best policy for you, be sure to check out our breakdown of the best health insurance providers.
Auto Insurance
Some estimates suggest that there are 16,438 car accidents every day in the US — that’s around 6 million a year.
If you’re unlucky enough to end up in an accident, you’ll face a myriad of costs, including healthcare costs, vehicle repair, and legal fees. Regardless of whether you were responsible for the accident.
And even if you’re not concerned about crashing your car for some reason, there are still financial reasons to take out auto insurance.
Although car insurance is no longer mandatory (as of January 2019), there are tax penalties imposed on those who don’t have a policy in some states.
How It Works
This one is pretty obvious. Anyone who has a car needs to get auto insurance — no ifs or buts!
How It Works
When you take out auto insurance, you’ll be given a quote based on various factors related to your vehicle and you as a driver.
These include:
- Your experience as a driver
- Your track record as a driver
- Your age
- Where you live
- The age and model of your vehicle
Although auto insurance can get expensive, there are steps you can take to lower your bill.
Liability Insurance
Liability isn’t quite as well-known as some of the other insurance types on this list, but it’s no less important — provided you’re a business owner.
Who Needs It
As mentioned already, liability insurance is for business owners, so employees can give it a miss. But for business owners (including sole proprietors), insurance is essential for running your operations safely.
If you think your business doesn’t carry any risk, don’t be so sure. Even something as simple as graphic design carries a risk — you could get sued by a client for designing something that damages their reputation or by a third party for copyright infringement.
How It Works
General liability insurance typically covers damages including property damage, personal injury, physical injury, and defense costs. However, every policy is slightly different, and the insurer will work with you to create a tailored policy for your needs.
The cost of liability coverage depends on the type of business you’re running and the risks involved.
For instance, if you employ lots of people or use dangerous equipment, your costs will bump up. The bottom line is if you have a business, you likely need some type of coverage.
Other Types of Insurance to Consider
Just because we’ve honed in on four types of insurance in this article — life, health, auto, and liability insurance — it doesn’t mean that this list is exhaustive.
In fact, this is just the **bare minimum **you should be aiming for.
Here are a few other insurance types that might be relevant for some people:
- Renters insurance - Insure the value of your home's contents
- Homeowners insurance - Safeguard your dwelling financially against damages and natural disaster
- Disability insurance - Protect your ability to earn an income
- Pet health insurance - Covers the cost of certain types of medical care for your pet
Time to Get Comparing
Having to pay four separate insurance premiums a month might sound excessive, but these sums pale in comparison to the expense of having to pay upfront for your huge bills like medical expenses or legal fees. Having adequate insurance options and coverage is an essential part of a well-rounded financial plan.
