Insurance is an interesting industry. It is there to protect you, but it sometimes seems like a huge waste of resources if you don’t end up needing it. Of course, if you do end up with a serious problem, not having insurance could take an already difficult situation and turn it into a financial catastrophe.
While you don’t need to insure against everything, there are a few insurance policies that you should have. The key is to recognize which insurance policies are the most essential to protecting yourself, and find a way to incorporate them into your budget. Not doing so is a gamble which can have a devastating financial impact if something happens.
These are the types of insurance you need to insure against the largest threats to your budget in the event of an unexpected disaster:
1. Auto Insurance
If you have a car, you need auto insurance – and not only because every state law requires that you carry it. For many people, their car is their only way to get to work; if it becomes un-drivable due to an accident, and the money isn’t available to buy a new one, it can be hard to earn a living.
Additionally, if you are at fault in an accident, the liability you have could become very expensive. Your auto insurance policy may pay medical bills and property damage so that you wouldn’t be forced to come up with the money out of pocket, possibly resulting in financial ruin.
2. Health Insurance
If you are uninsured, you may be one hospital stay away from bankruptcy. Health insurance will help you offset some of the rising costs of health care – at least when it comes to large health needs. If you have a chronic condition, health insurance can help you better afford the care you need.
Even if you are in good health, and rarely use health care services, it can be a good idea to at least have a policy that covers major medical problems, just in case an accident befalls you.
3. Home/Rental Insurance
Your home represents a huge, expensive asset. If it’s damaged, it’ll cost you, big time. And depending on how bad the damage is, you might not be able to live there while repairs are being made. Depending on your policy, homeowners insurance can help you pay for home repairs, short-term lodging, or even a new home . . . without a huge outlay of capital all at once.
Rental insurance is also a good idea, since the landlord’s property insurance usually only covers the structure and land, but not the contents of the rental property. Thankfully, rental insurance is usually very affordable, sometimes as low as $10 a month. At that price, you can’t afford to skip it.
4. Life Insurance
Life insurance is probably the most important insurance policy you will ever purchase. It protects your loved ones by providing income for them in the event you pass on. It can also be a good idea to insure your life, even if you aren’t the primary breadwinner. After all, the duties of a stay-at-home spouse are worth quite a bit. Though you may not pay a stay-at-home spouse a salary, it would be expensive to replace everything they do to run the household. Consider your needs, and make sure that you have adequate life insurance.
Statistics show that 1 in 4 people will become disabled at some point before they retire. Even though this statistic includes people who receive short term disability, it is an astounding number. This makes us ask the question, “Can I afford a short term or long term disability?” Is your emergency fund large enough to sustain no income for a month? What about two months, or three months, or six months? The average monthly benefit paid by Social Security Disability Insurance (SSDI) is $1,065 per month. Will that be enough to support your family?
Disability insurance can help cover the unknown situations, and it can be a good idea, especially if you are the primary breadwinner in your household or work in a high-risk industry. Should you have an injury that qualifies for your policy, your disability insurance will pay you while you are unable to work. Disability insurance policies often vary substantially between providers, so be sure to thoroughly review your policy to understand which situations qualify for benefits, how and when you qualify for payments, how much you will receive, etc. Typically, there is a waiting period of up to 30 days or longer before disability benefits kick in, so it is always good to have an emergency fund in place so you can have something to live on in the mean time.
Are there other types of insurance people need (or should at least consider)? Leave a comment with your thoughts!
Photo credit: Keith Allison