4 Types of Insurance Policies and Coverage You Need


We can't prevent the unexpected from happening, but sometimes we can protect ourselves and our families from the worst financial fallout.

Choosing the right type and amount of insurance depends on your specific situation, such as child benefits, age, lifestyle, and employment.

Four types of insurance that most financial experts recommend include life insurance, health insurance, auto insurance, and long-term disability.

4 Types of Insurance Policies and Coverage You Need

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Life insurance will help save money for survivors.

Health insurance protects you from catastrophic bills in the event of a serious accident or illness.

A long-term disability protects you from an unexpected loss of income.

Car insurance prevents you from bearing the financial burden of an expensive accident.

1. Life Insurance

The two main types of life insurance are conventional life and life insurance.

The whole life can be used as an income tool as well as as an insurance tool. It includes the death benefit as well as the monetary component. As the value grows, you can access the funds by taking out a loan or withdrawing funds and you can terminate the policy by taking the monetary value of the policy.

You cover the life for a specific period of time such as 10, 20 or 30 years and your premiums remain fixed. Usually the most affordable type of life insurance, a term policy can work to cover the years when a mortgage loan is pending or throughout your children's college years.

Life insurance is especially important if your family depends on your salary. Industry experts suggest a policy that pays 10 times your annual income.

When estimating the amount of life insurance you need, consider funeral expenses. Then calculate your family's daily living expenses. They may include mortgage payments, outstanding loans, credit card debt, taxes, child care, and future college costs.

According to a 2021 study by LIMRA, formerly the Life Insurance and Market Research Association, more than half of American households rely on dual income. The study also found that a quarter of families will experience financial hardship within one month of a worker's death.

2. Health insurance

Health insurance can be obtained through your employer, federal health insurance marketplace, or private insurance that you purchase for yourself and your family by contacting health insurance companies directly or through a health insurance agent.

The Centers for Disease Control (CDC) at the National Center for Health Statistics reported that only about 9.2% of the American population was without insurance coverage in 2021. More than 60% obtained their coverage through their employer or in the private insurance market while the rest was covered by Through government-supported programs including Medicare, Medicaid, veterans benefit programs, and the federal market established under the Affordable Care Act.

If your budget is very limited, even a minimal policy is better than nothing. If you have a low income, you may be one of 80 million Americans who qualify for Medicaid.

If your income is moderate but does not extend to insurance coverage, you may qualify for subsidized coverage under the Federal Affordable Care Act.

Usually, the best and least expensive option for salaried employees is to participate in your employer's insurance program, if your employer has one. The average cost of an employee annuity in an employer-sponsored health care program was $7,739 for individual coverage and $22,221 for a family plan in 2021, according to research published by the Kaiser Family Foundation.

3. Long-term disability coverage

Long-Term Disability Insurance supports those who become unable to work. According to the Social Security Administration, one in four workers who enter the labor market will become disabled before they reach retirement age.

While health insurance pays for hospitalization and medical bills, you are often overburdened with all the expenses covered by your paycheck. Many employers offer short-term and long-term disability insurance as part of their benefits package. This would be the best option for affordable disability coverage insurance.

If your employer does not offer long-term coverage, here are some things to consider before purchasing insurance on your own:

  • The policy that guarantees income replacement is optimal. Many policies pay 40% to 70% of your income.
  • The cost of disability insurance depends on many factors, including age, lifestyle, and health. The average cost is 1% to 3% of your annual salary.
  • Before you buy, read the fine details. Many plans require a three-month waiting period before coverage begins, provide coverage for a maximum of three years, and contain important policy exceptions.

4. Car insurance

Despite years of improvements in vehicle safety, an estimated 31,720 people died in road and highway traffic accidents in the United States in the first nine months of 2021, according to the National Highway Traffic Safety Administration.

Almost all states require drivers to have auto insurance and a few still do not hold drivers financially responsible for any damage or injuries they cause. Here are your options when buying car insurance:

  • Liability coverage: Pays for property damage and injuries you cause to others if you are at fault in an accident and also covers the costs of litigation, judgments or settlements if you are sued for a car accident.
  • Comprehensive and Collision Coverage: Collision insurance pays to repair or replace your vehicle after an accident, regardless of fault. Comprehensive insurance covers theft and damage to your vehicle due to flooding, hail, fire, vandalism, falling objects and animal strikes. When you finance your car or rent a car, this type of insurance is mandatory.
  • Uninsured/Uninsured Drivers (UM) coverage: If an uninsured or uninsured driver hits your vehicle, this coverage pays you and your passengers medical expenses and may also represent lost income or make up for pain and suffering.
  • Personal Injury Protection (PIP): PIP insurance helps compensate you and your passengers for costs such as rehabilitation and lost wages.
  • Medical Payments Coverage: MedPay coverage helps pay for medical expenses, which are typically between $1,000 and $5,000 for you and your passengers if you are injured in an accident.

As with all types of insurance, your circumstances will determine the cost. Compare multiple quotes and the coverage offered, and check periodically to see if you qualify for a lower rate based on your age, driving history, or the area you live in.

Bottom line

Most experts agree that life insurance, health insurance, long-term disability, and auto insurance are the four types of insurance you should get. Employer coverage is often the best option, but if that's not available, get quotes from several providers as many of them offer discounts if you buy more than one type of coverage.

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