The right type and amount of insurance to buy will always depend on your situation. When you build your insurance portfolio, things like the number of children you have, your age, the way you live, and the benefits you get from your job all matter. Most financial experts, though, say that everyone should have life, health, auto, and long-term disability insurance.
Everyone needs these four types of insurance:
The best things about life insurance are that it lets you pay for your funeral and helps those you leave behind. This is especially important if you have a family that depends on your salary to pay the bills. Experts in the business world say that you should have a life insurance policy that covers 10 times your annual income. 1 But not everyone can pay that amount.
When figuring out how much life insurance you need, don’t forget to include not only funeral costs but also the cost of living every day. Some examples are mortgage payments, outstanding loans, credit card debt, taxes, child care costs, and the cost of college in the future.
LIMRA, which used to be called the Life Insurance and Market Research Association, did a study in 2021 that found that more than half of U.S. households depend on two incomes. The study also found that one month after a wage earner’s death, one in four families would have trouble making ends meet. 2
Traditional whole life and term life are the two main types of life insurance. Whole life can be used both as a way to make money and as a way to get insurance. Whole life insurance covers you until you die as long as you keep paying the monthly premiums.
On the other hand, a term life insurance policy covers you for a set amount of time. There are other big differences between the two types of insurance, so you might want to talk to a financial expert before deciding which one is best for you. You should think about your age, your job, and the number of children who depend on you.
According to a 2019 study from the American Journal of Public Health, you and your family are just one serious illness away from going bankrupt. The Journal did a survey of more than 900 Americans who filed for personal bankruptcy between 2013 and 2016. Two out of three bankruptcies were caused by medical problems, either because of bills or because of lost income because of illness. 3
Just looking at those numbers should make you want to get health insurance or look at what you have and possibly increase it. But as co-payments go up, deductibles go up, and coverage goes away, health insurance is becoming a luxury that fewer and fewer people can afford. When you consider that a day in the hospital cost $2,607 on average in 2019, even a small policy is better than none. 4
Participating in your employer’s insurance program may be the best and least expensive choice, but many small businesses don’t offer this perk. According to research from the Kaiser Family Foundation5, the average cost of an employee’s health insurance premium through an employer in 2021 was $7,739 for single coverage and $22,221 for a family plan.
If you don’t get health insurance through your job, check with trade groups or associations to see if they offer group health coverage. If you can’t do that, you’ll have to buy your own health insurance.
LONG TERM DISABILITY COVERAGE
Most of us don’t think we’ll ever need long-term disability insurance. Yet, the Social Security Administration says that one in four people who start working will get sick or hurt and be unable to work before they reach the age of retirement. 6
Even workers with good health insurance, a nice savings account, and a good life insurance policy don’t always plan for the day when they might not be able to work for weeks, months, or ever again. Even though health insurance pays for hospital stays and medical bills, you still have to pay for things like groceries and gas with your paycheck.
As part of their benefits package, many employers offer both short-term and long-term disability insurance. This would be the best way to get low-cost disability insurance. If your employer doesn’t offer long-term coverage, here are some things to think about before buying insurance on your own.
The best policy is one that guarantees income replacement. Most of the time, insurance pays out between 40% and 70% of your income. Disability insurance costs depend on many things, such as age, lifestyle, and health. On average, it will cost you between 1% and 3% of your annual salary. 7 But read the fine print before you buy. Many plans have a three-month waiting period before coverage starts. They also only cover you for a maximum of three years and have major policy exclusions.
The National Highway Traffic Safety Administration says that there were 5.25 million car accidents in the US that were reported to the police in 2020. It is thought that 38,824 people will die in car accidents just in 2020. 8 The Centers for Disease Control and Prevention (CDC) says that car accidents are one of the leading causes of death in the United States and around the world. 9 In 2020, about 2.3 million drivers and passengers in the US were hurt. 8 In 2019, car accidents that killed people in the US cost around $56 billion. 10
Even though not all states require drivers to have car insurance, most have rules about who pays for damages in case of an accident. States that do require insurance do random checks on drivers every so often to see if they have proof of insurance. If you don’t have insurance, the fines can vary from state to state and can include losing your license, getting points on your driving record, or paying between $500 and $1,000.
If you don’t have car insurance and get into an accident, the fines will probably be the least of your problems. If you, a passenger, or the other driver are hurt in the accident, your auto insurance will pay for the costs and protect you from any lawsuits that could come from it. Auto insurance also protects your car from being stolen, vandalized, or damaged by a natural disaster like a hurricane or other bad weather.
Again, just like with any other insurance, the cost of your auto insurance will depend on your unique situation. To make sure you get the right insurance, compare several quotes for rates and coverage and check periodically to see if you qualify for lower rates based on your age, driving record, or where you live.