You can’t control your future and life is also unpredictable, but you can insure it! Taking necessary measures for your future is as important as living a healthy life today. Insurance is your financial protection from certain losses. Most often we think, “I’m living the fullest, and I don’t need one”, and skip it. But when you need financial safeguards, if you need one, you’ll be more thankful than anything else for having insurance.
It becomes more than necessary as the day passes. But, there different types of insurance for different purposes. You will get confused when buying the first one. You may get some “expert” advice to buy as many as possible. Things get difficult when you have no clue about the right one. Such advice like buying all the policies leaves you uncertain about buying one.
First, understand your present situation and needs before getting advice from everyone around you. There are many factors needed to consider before buying your first insurance.
Certain insurance has certain coverage types. With so many policies and conditions, it becomes complicated. No worry! We’re here to help you out! We have covered the most common insurance types, what they do, and how they work. Here are the 5 most common and necessary policies we’ve discussed for you,
5 Types Of Insurance
- Life insurance
- Health insurance
- Auto insurance
- Disability Coverage
- Umbrella insurance
- Life Insurance
Death is uncertain. So is the fate of your family if you have no plan or financial backup for them. Life insurance majorly helps in this type of critical situation. Dependents of a life insured person get a significant amount of financial boost in their absence.
Must-Have For: Someone who is planning to start a family, or already has one.
Policy Explained: Life insurance is necessary for people with dependents. It lifts the financial burden of the nominees after the end of the coverage or the death of the insured person. There are two types of life insurance:
- Whole Life Insurance
- Term Life Insurance
Traditional whole life insurance covers you until your death. You continue paying a certain amount of premium for your whole life according to the policy. As for term life, the policy covers you for a specific period. There are some more differences between these 2 policies. The best way to learn more specifically is to contact your local free agent or insurance broker.
Your life insurance policy should cover at least 5 times your annual earnings. Death is not the only expense you should consider while buying the policy. Death is already expensive, and life becomes tough after the death of the earning person of the family. Consider other expenses, alongside funeral costs, such as day-to-day living expenses, unpaid loans, taxes, children’s educational costs while estimating the amount of the policy.
Benefits: The policy, with a lot of benefits, is the most available of all. Sometimes we overlook other benefits. But there are some other significant benefits alongside the final payment you receive from the insurer company.
Although the main focus is to get funeral expenses after the departure of the breadwinner of the family. There are some expenses that people tend to overlook i.e. estate taxes, educational expenses for children, repay loan debt, business loss.
If you choose your policy coverage amount wisely, it will easily help your beneficiary with their estate taxes. It can ensure parents to aid their kids’ school or college fees when they need it the most. You can also get accumulated cash against any debt you already have. A substantial policy can back up the business loss of a business owner. A key-man policy provides financial support when a key partner or employee is lost, ensuring other partners to continue the business.
- Health Insurance
Health issues can be serious sometimes. One major disease or serious illness can leave your whole family broke. Medical expenses including doctor visits, medicine costs, and cost of surgery are very expensive. It’s very difficult to carry out such expenses for most of the people living average lives.
In the USA, more than 60% of people get bankrupted due to high medical expenses. So, health insurance has been a luxury due to higher deductibles, reduction of coverage, and increased co-payments. Even though it is better to have a minimum amount of policy than having none.
Must-Have For: Everyone, who is capable of buying one. It may be tough to carry out the premiums, yet it saves you from bankruptcies in critical medical situations.
Policy Explained: Health insurance is a contract where the insured pays premiums in return for a portion of their medical expenses paid by the insurer company.
A well-estimated policy is a must-have for any person out there regardless of their health condition. Due to the higher medical expense around you, you leave yourself vulnerable to being uninsured. Thanks to the Affordable Care Act, buying health insurance gives a tax credit to make it more affordable for mass people.
A few different policies are containing different coverage packages. Common plans are,
- Low-deductible plan: Low deductible plan requires higher premiums. This policy keeps your expense low as it is named. Since the coverage is high, you don’t have to worry about huge medical costs during a medical emergency. This plan is best for those who visit the hospital frequently and are more expensive than regular.
- High-deductible plan: High-deductible plan covers less than low-deductible health plans. Your premiums are low and deductibles are high in this plan. So, it saves less during medical crises. This plan has an advantage – you can open a Health Savings Account to pay your medical costs when necessary.
- Catastrophic plan: The cheapest health policy is a catastrophic plan. You pay the least amount of premiums. Also, the deductibles are higher than high-deductible plans. This plan contains no coverage for regular medical cases. You only get benefits if you meet critical medical conditions with thousands of dollars in medical bills.
Benefits: Medical expenses are very high these days. So, health insurance has become a luxury too. But this shouldn’t be an excuse for not buying a policy. There are plans for you according to your health and financial condition. If you are one of those who are not ready for policies with higher premiums, you should go for high-deductible health plans. This plan lets you open a Health Savings Account (HSA). These savings accounts give you a tax credit to pay your medical expenses.
Some of the benefits of health insurance with HSA are,
- HSA contributes to the tax deduction. You get a tax rebate when you open an HSA to pay your medical bills.
- As your HSA contributes to the tax deduction, it promotes tax-free growth. So, you can use your tax-free investment in the future.
- These tax-free savings can be used for medical expenses such as health insurance deductibles, medical fees, surgeries, and other costs.
- Auto insurance
Car accidents are frequent in America. It is one of the top causes of death for people under the age of 30. Driving without auto insurance is against the law. If your car, without being insured, gets involved in an accident, you have to pay a large amount of fine out-of-pocket. It will protect you from maximum financial loss.
Must-Have For Types of Insurance: Those who own cars, bikes, or other vehicles. Vehicles must be insured against accidents, theft, and natural disaster according to the law.
Policy Explained: Auto insurance is the policy for the owners of cars, motorbike, and other vehicles as a signal of protection against accidental damage, injury, theft, or natural disaster.
This is compulsory in most of the states in America. Without auto insurance, you can be fined from a suspension of driving license to $1,000. Many companies provide auto insurance with a variation in policy and price. Compare the policy, coverage, price, and other factors to choose the best option for you. You should also do a periodical check for eligibility for lower policy costs based on your present status.
Benefits: Insurance is not only because the law is imposed on you, but also for some significant benefits from it.
- Liability coverage will protect your money from any injury or damage of property if you cause an accident. It is also compulsory in most of the states to have minimum liability coverage.
- If your car is damaged in a collision whether you’re responsible or not, collision coverage will pay for the repair of your vehicle.
- Comprehensive coverage protects your vehicle from causes other than accident, wreck, vandalism, or theft (i.e. Natural disaster).
Consult an agent to determine which type of coverage you need for your vehicle.
- Disability Coverage
Disability is the most unfortunate case that most of us want to avoid. We can never think of this kind of misfortune before it happens to us. So, it is common to overlook such coverage. But, the Social Security Administration reports, one in every four people becomes disabled during their employment life.
Life or health insurance with good coverage cannot protect a person if he’s unable to work for a longer period. Disability insurance is a replacement of your income if you are unable to work due to an accident or illness.
Must-Have For: Everyone. Disability is an uncertain case leading to long-term financial loss, loss of income, and so on. This policy can save one from such disastrous situations. So, it is a recommended policy for anyone having a good earning at their prime age.
Policy Explained: Usually most of the employers provide or purchase disability policy for their employees. If your employer doesn’t provide one, you can purchase for yourself from the policy market. Most of the time people avoid purchasing one because of its price. Premiums are equal to a portion of your income. Some other factors like gender, health condition, probability of disability, time duration without income also come into consideration while determining the policy cost.
There are two types of insurance policies: short-term policy, and long-term policy. Payment for a short-term disability policy ranges from 60 to 70 percentages of the basic income of the insured. For a long-term policy, the payment from the insurer is between 40 to 60 percentages. There is also a maximum amount that you’ll pay from your provider according to the policy.
Benefits: Disability policy can be a lifesaver if something wrong occurs to you resulting in a long-time no-income situation. You can apply for social security disability benefits for long-term disability. If somehow you don’t get qualified for this benefit, life can be hard without income. In such cases, your disability policy will protect you financially.
- Get employed in such a company where you are offered disability coverage.
- Get yourself protected in advance before anything happens to you.
- If you want long-term security, get the long-term policy.
- Read the policy thoroughly before you buy one.
Still, confused about purchasing one for yourself? Consult a free agent near you. He’ll guide you according to your needs.
- Umbrella Policy
An umbrella policy provides additional protection to you and your property. Let’s assume, you own a car which got damaged in an accident. Certain factors will determine how much you’ll be covered by your insurer. If the coverage doesn’t provide the full financial support you need, your umbrella policy can help you. An umbrella policy can cover your liability risks from $500,000 to $1,500,000.
Must-Have For: Every insured person.
Policy Explained: Umbrella policy can also be called as liability insurance. It increases the coverage of other insurances. It covers certain injuries, property or car damage, or personal liabilities. When other policies don’t cover claims such as lawsuit or slander, the umbrella policy protects you with extra coverage.
Keep in mind, an Umbrella insurance doesn’t cover your injury or damage to your personal property. An intentional criminal activity to damage other’s assets or injure them.
Benefits: Let’s say, you’re taking a long drive on your holiday. Suddenly another car crashes in your car. Unfortunately, the other car is damaged more heavily than yours. Now the car owners sue you for the damage. The bill you have to pay exceeds your auto insurance. So, how will you manage the remaining bill? Luckily, you have umbrella insurance purchased. It will cover your extra bills protecting your out-of-pocket money.
Time to Decide the Policies You Need
Even though different policies are covering your losses in certain cases, you need to know which policies are most suitable for you. Life insurance is the basic type of insurance that everyone needs. Auto insurance is for every car or motorbike owner. Skip it if you don’t own one. Other insurances are based on your financial condition, backup, and capability to continue premiums of that insurance.
If you are a business owner or have any special cases, you may need a special type of insurance. There is also customized insurance for such special cases. Make sure to insure yourself from the risks you feel may occur to you. Consult a local agent, and compare the policies from different companies to determine which policy best suits you.
Life and health insurance are the most common insurance that most experts suggest to have. Check if your employer has any insurance for you. Then decide if there is any other insurance you feel you should have. Look for bundle policies from one company. They may have some sort of offer or discounts for you. Keep a safe distance from additional policies like cancer, lawsuit, or accidental casualties insurance. They are more likely to rob you rather than insure. Get yourself insured for saving yourself from future unexpected events, not wasting your money on something useless.