Have you ever talked to a pushy insurance salesman?
I have…and let me tell you, it’s NO fun.
It doesn’t matter what question you ask them, the answer is always, “More insurance!”
So, if you’ve ever wondered, “What kind of insurance do I REALLY need?” I’ve put together a list of 7 types of insurance products most people need and some basic information about each type.
Like most areas of financial planning, the types and amounts of insurance coverage you need should be considered in light of your overall financial situation, such as your goals, values, financial resources, current coverage, etc.
So, with that in mind, let’s get started…
1. Health insurance
Unless you’ve been living under a rock for the last few years, you probably know that by law, Americans are now required to have health insurance.
And if you don’t, come tax time, be prepared to pay a penalty!
There are a lot of factors to consider when deciding on the right health insurance policy, but one important thing to remember when researching your options is that typically, but not always, the larger the provider network and the lower the deductible, the higher the premiums.
The opposite is also usually true.
In other words, the smaller the provider network and the higher the deductible, typically the lower the premiums.
Keep that little nugget of truth in mind when comparing/contrasting different policies!
2. Auto insurance
If you own and/or drive a car, you need some sort of automobile insurance.
Each state determines the minimum amount of lawful coverage for automobile insurance, but most folks would be adequately under-insured at these “minimum” levels.
And don’t forget insurance for rental cars! Many folks are surprised to hear that rental cars aren’t always covered under their personal automobile insurance policy, or if they are covered, the coverage isn’t always sufficient (sometimes credit cards will offer some sort of coverage as well so it’s worth looking into!).
Check into this before heading out of town on your next trip. You just might save a few bucks by avoiding unneeded coverage…or a few THOUSAND bucks if you get into an accident with that rental after springing for the supplemental coverage offered by the car rental company!
As with every other kind of insurance on this list, be sure to talk to your financial advisor and an independent insurance agent to determine your coverage needs.
3. Life insurance
Most people realize that if someone depends on you for income (i.e. spouse, children, etc.), then you likely need life insurance.
But don’t forget singles and stay-at-home parents…
If something happens to a stay-at-home parent, for example, then the surviving parent will obviously have to arrange childcare (and housecleaning, laundry, home maintenance, cooking, etc.) OR they’ll have to become a stay-at-home parent themselves, thereby losing their current stream of income.
And for singles, even if no one depends on you for income, in certain cases, your estate might not be large enough to cover your debts and funeral costs.
So in both of these examples, life insurance would likely be prudent.
When shopping for life insurance, keep in mind that it doesn’t usually make sense to mix insurance with investing due to the excess and hidden fees often involved with “fancier” insurance policies (i.e. whole life, variable life, etc.). With that in mind, term life insurance is usually the best choice for the vast majority of individuals and families who need a high amount of life insurance at the lowest possible cost and whose coverage needs aren’t permanent in nature.
4. Long-term disability insurance
If you’re like most working adults, then having no income from 3-6 months up to 20-30+ years would be “kind of a big deal.”
If that sounds like your situation, then you should STRONGLY consider purchasing a long-term disability policy.
There are a lot of quirky options out there when it comes to disability insurance, but typically “own occupation” coverage equal to 60-80% of your current gross income, with coverage to age 65, and a 90 to 180 day elimination period is considered sufficient.
Group coverage provided or available through your employer or professional association is usually cheaper than coverage you can get on your own, especially for higher paid, specialized professions such as doctors, attorneys, etc.
As with most purchases though, this isn’t always the case, so it pays to shop around.
5. Homeowner’s or renter’s insurance
This probably goes without saying, but if you own or rent a house, apartment, condo, etc. then you need some form of insurance for your property and possessions in the event of a loss.
These types of policies usually also offer some sort of basic personal liability protection.
Along with your financial advisor, talk to an experienced property and casualty specialist to ensure you have adequate coverage at a good price.
6. Personal liability umbrella insurance
Homeowner’s and auto insurance liability amounts aren’t usually considered sufficient by most experts in today’s “sue first, ask questions later” society.
Enter the personal liability umbrella policy, or “PLUP” for short.
Rather than continuing to increase your liability coverage on both your auto and home insurance up to the maximum, it’s typically cheaper to buy this type of policy.
For example, for around $300-500/year, you should be able to get $1-3 million in liability coverage that kicks in after your auto or home liability coverage levels are exhausted.
Lord willing, like most forms of insurance, you’ll never use it. But if you end up on the receiving end of a nasty lawsuit, you’ll be glad you have it!
7. Professional liability insurance
Sometimes called errors and omissions (E&O) or malpractice insurance, this type of liability insurance applies to liability that is a direct result of your profession.
For example, folks in the following professions typically carry this type of insurance…
- Physicians, Dentists, and Chiropractors
- Financial advisors, CPAs, and Attorneys
- Architects and Engineers
Odds are, if you’re in one of these professions (or a similar highly litigious profession) long enough, it’s not usually a question of IF you’ll get sued, but WHEN you’ll get sued, so this type of insurance is a necessity.
Other types of insurance you might need
This list is obviously not all-encompassing.
For example, depending on your age and financial situation, long-term care insurance, general business liability insurance, or any number of other types of policies might make sense.
Regardless of what kind of insurance you need though, it’s important to take your entire financial situation into account when determining the proper types and amounts of coverage you need.
While contacting a licensed, independent insurance agent is certainly a good start, having an objective third party such as a fee-only financial advisor (like SageOak!) to help “quarterback” the relationship will help keep you from having to hear “Insurance is the answer!” to every question you ask!