5 Types of Insurance You Should Have

By Miranda Marquit

When you’re putting together your personal financial plan, it’s common to think about things like budgeting and investing. However, few of us think about the types of insurance we need.

Insurance is vital, though. It helps protect your finances and assets from certain types of risk. Think about it. Could you just rebuild your home if it was destroyed in a natural disaster? You wouldn’t have the money.

If you want to protect your finances and your family, here are five types of insurance you should consider.

1. Health Insurance

What would you do if you ended up in the hospital, with a huge bill? Do you have enough money to cover the costs?

Health insurance can make some of these bills manageable. Plus, with health insurance, preventative care is covered. So when you go in regularly for checkups, it can keep you from bigger problems down the road.

With the help of health insurance, you might not need to deplete your emergency fund as much when you run into an unexpected health problem. Take care of your health, and cover your bases with insurance, and you might stave off a serious problem.

2. Life Insurance

This one’s a little tricky. With life insurance, it’s not about you. It’s about who you leave behind. If you have people relying on you, life insurance can protect them.

Life insurance is especially important if you have a family. Do you want your kids protected if you pass on unexpectedly? Life insurance can help your loved ones pay for your funeral, pay off family debt, and can even help your kids go to college.

Carefully consider whether you want a policy that ends after a set period of time (term) or whether you want a permanent policy (whole life or universal). Talk with a financial professional about your long-term goals and needs so you can determine which of these types of insurance you want to help your family after you’re gone.

3. Car Insurance

It’s fairly obvious you need car insurance. After all, every state requires that you carry it. Even so, it serves a purpose. If you were in a car accident, could you afford to replace your car immediately? How would you pay off the remainder of the loan on your current car and then get a different car?

Your car insurance policy can help with this. Rather than raiding your emergency fund or trying to come up with extra money to cover the costs associated with an accident, the insurance pays — protecting your finances.

4. Homeowners Insurance (or Renters Insurance)

Most of us can’t afford to replace a house or cover major repairs. With homeowners insurance, you don’t have to worry about that. With the right coverage you’re covered, no matter what happens.

It’s important to evaluate your homeowners coverage regularly to make sure it will cover your home. In some cases, if your home has increased in value, you might need to upgrade your coverage down the road.

But what if you don’t own your home? What if you’re renting? It’s tempting to think it’s no problem. However, the reality is that you should have renters insurance. Your landlord has insurance to cover their losses. However, if your property is destroyed, the landlord’s insurance doesn’t take care of it. This is where renters insurance comes in.

Think about the valuable items you probably have in your house. A computer or laptop? What about your TV? Do you have other things, like a bed or a couch, that would be expensive to replace if they were stolen or ruined? Renters insurance will help you replace these items without breaking your budget or draining your emergency fund.

5. Disability

Of the types of insurance listed here, this is probably the least necessary. Disability insurance is designed to provide you with a portion of your income if some type of injury or illness prevents you from working. It can be an important part of your personal benefits package, though.

If you have built up your emergency fund to a point where you could live off it for a long time, you might be able to “self-insure.” However, disability insurance is usually fairly inexpensive, and it can provide you coverage so that you can stretch your emergency fund further if you need to.

Speak with a knowledgeable financial professional about your needs to see if disability insurance makes sense for you.

Bottom Line

You never know what’s going to happen. Life is full of surprises — and many of them are unpleasant and expensive. When you have the right insurance policies to protect you and help you with your financial foundation, there’s a good chance you’ll limit the damage, preserve your assets for another day, and hopefully avoid devastating financial loss.