When it comes to insurance, there are three camps: the risk takers, who think they’ll never need it; the worrywarts, who think they can’t get enough of it; and the rest of us, who know we need some because we don’t want to leave everything to chance.
We also don’t want to buy insurance that doesn’t make sense and that we’re unlikely to ever need. In this article, we’ll focus on five types of insurance that we very well may need at some point.
Regardless of what you think about Obamacare -- President Obama’s initiative that everyone, no matter how poor, should have equal access to health care -- health insurance should be viewed as a necessity for the vast majority of Americans, with the possible exception of those who receive Medicaid or Medicare.
Health care costs are soaring and only the richest of the rich could pay out of pocket for medical expenses. The most routine visits to the doctor cost a couple of hundred dollars, the more serious illnesses can generate a four-figure bill and giving birth or suffering a heart attack can cost five figures. True, health insurance premiums are pricey, they go up every year and they strain middle-class budgets, but not having coverage can cost way more than most of us can afford. And it can cost us our houses and cause us to file for bankruptcy. (To learn about how to get affordable health care without insurance, see How To Get Affordable Health Care Without Health Insurance.)
If you’re not married and you don’t have children, you can go without life insurance, but if there are people in this world who are financially dependent on you – if there are spouses, children, parents and others who would face a financial hardship if you died – you need to protect them by buying life insurance.
How much coverage do you need? Figure out how many more years you are likely to work, then figure out how much you will earn during that time. After you have a figure, add to it funeral costs. The total is the minimum amount of coverage you should buy. As life expectancies rise, life insurance premiums have shrunk so life insurance is more affordable than a lot of people assume. Having said that, the best rates are for the youngest and healthiest and anyone who applies should expect to undergo a thorough physical examination which includes blood and urine tests. (For more information on how much life insurance you should buy, see How Much Life Insurance Coverage Do I Need?)
For most Americans, their homes are their most valuable asset. It is irresponsible not to protect your home by insuring it. If your house is not paid off, you must have insurance, but some people who pay off their mortgages make the mistake of dropping their coverage. Your coverage, at a minimum, should allow you to replace the house if it burned down or was otherwise destroyed. It also might make sense to buy a policy that covers the contents. Contents coverage is relatively inexpensive. Don’t make the mistake of buying too much coverage. If your property is assessed at $300,000, $200,000 might be for the house and $100,000 might be for the land. If you think you can have the house rebuilt for $200,000, then that is how much coverage you should buy, not $300,000. (For some tips on buying homeowners insurance, see 9 Tips On How To Buy A Home Insurance Policy.)
No one wants to think about it, but what happens if you suffer a serious injury or illness that makes it impossible to continue to work? Yes, you can collect Social Security disability checks, but they won’t replace all of your income. That’s where disability insurance comes into play. It enables you to replace some of your income, and like life insurance, it makes even more sense if you have people who are financially dependent on you. If you think it will never happen to you, consider that one in five Americans become disabled at some point and most of those people are disabled for three months or longer. The least expensive disability insurance – either short- or long-term – is through your employer which enjoys attractive group rates. (For tips on how to buy disability insurance, see How To Buy The Best Disability Insurance Policy.)
Every state requires car owners to have some sort of insurance and penalizes those who don’t buy it. But you should have some coverage even if you weren’t required to have it. Imagine if you get in an accident and it is your fault and the other driver is seriously injured. Without liability insurance, that driver can sue you and own everything you own. That doesn’t mean everyone should buy comprehensive auto insurance. If you drive a piece of junk, you probably don’t want to buy collision insurance. (For tips on how to get a good deal on automobile insurance, see How To Get The Best Deal On Car Insurance.)
There are a number of types of insurance that most people will never need, but these five policies make sense for anyone who wants to be financially responsible. Make sure you shop around, ask lots of questions and know what you’re buying.