Insurance is meant to protect you from a major financial loss. It’s for those incidents that happen to other people but you never think will happen to you. A car wreck. A house fire. A heart transplant.

You don’t want to buy insurance, you hope to never need it, but you’ll be glad you have it if and when unforeseen, unexpected and unfortunate events occur.

There are a number of types of insurance policies, so many that one could spend a large portion of their budget just on premiums. Some types of insurance, while offering protection, aren’t always necessary.

Then there are those policies that almost everybody should own. These include:

  1. Individual disability insurance
  2. Long-term care insurance
  3. Term life insurance
  4. Health insurance
  5. Homeowners insurance or renters insurance
  6. Auto insurance
  7. Umbrella insurance

Individual disability insurance

What it is:

Disability insurance covers the potential loss of income caused by injury or illness. If you are unable to work because of a covered disability, an individual disability insurance policy will replace part of your income. You will receive these benefits for as long as you’re disabled or up to a maximum period of time spelled out in the policy.

Why you need it:

  • According to the Social Security Administration, about 25 percent of 20-year-olds will become disabled at some point before reaching age 67.
  • Having individual disability insurance means being able to buy food, pay bills, and cover household expenses while you’re unable to work.
  • Disability insurance is one of the only ways to continue collecting money if you’re unable to work due to injury or illness. Workers compensation only provides benefits if you’re injured on the job. Social Security benefits are difficult to qualify for and have limited benefits.
  • Group disability is also an option, but it’s usually contingent on employment or group membership. It also lacks the breadth of coverage offered on individual policies.

Learn more about disability insurance for individuals.

Long-term care insurance

What it is:

Whereas long-term disability covers lost income, long-term care insurance covers much of the costs of nursing homes, assisted living facilities or in-home care. If you become unable to care for yourself, an LTC insurance policy will provide contracted benefits to help you pay for professional care.

Why you need it:

  • Most people require some form of long-term care in their later years. This type of care is not covered by regular health insurance or by Medicare.
  • According to the Department of Health and Human Services, about 25 percent of people who are now age 65 will incur long-term care expenses of at least $50,000 at some point in their lives. About 9 percent will have out-of-pocket expenditures of at least $250,000
  • According to Genworth Financial, the national median monthly cost of long-term care services in 2018 ranged from $1,500 for adult day health care to $4,000 for home health care to more than $8,000 for a private room in a nursing home.

Term life insurance

What it is:

Life insurance pays a death benefit to the beneficiaries of the policyholder following his or her death. With term life insurance, the insurance company agrees to insure your life for a specified term as long as you pay your premium. The most common terms are 10, 20 and 30 years. The shorter the term, the less you will pay in premium.

If you pass away within the term of your policy, the insurance company will pay your named beneficiary(s) a death benefit. That death benefit is agreed upon at the time you apply for the policy. The higher the death benefit, the more premium you will pay for coverage.

Why you need it:

  • If you have family who would be financially devastated by your untimely passing, then you definitely need a term life insurance policy. The policy’s death benefit can effectively replace several years of income lost because of your death.
  • Even if you are single, you may want to consider a term policy that pays a smaller death benefit, often referred to as final expense term insurance. It can cover the expenses that arise from your passing, such as your funeral arrangements and settling your estate.
  • Some debts, such as some private student loans, your mortgage, car payments and credit card balances, will need to be repaid by your remaining estate.

Health insurance

What it is:

This is coverage for medical expenses. Depending on your policy, it may pay some or all of the cost of doctor visits, prescription drugs, hospital stays and surgical procedures. Many people get coverage through their employer, while others get individual policies.

Premiums you pay for health insurance is a tax deductible expense. In addition, you can put aside pre-tax money in a health savings account or flexible spending account to cover out-of-pocket medical expenses.

Why you need it:

According to a Harvard University study, about 62 percent of bankruptcies are caused by medical expenses.

The Affordable Care Act used to require health insurance coverage. Though this is no longer the case at the federal level as of January 1, 2019, some states still require you to have health insurance coverage to avoid a tax penalty.

Homeowners insurance or renters insurance

What it is:

Whether you rent or own your home, it’s important to protect your property. Homeowners and renters insurance policies cover damage to or loss of property you own caused by fire, explosion, severe winds, hail storm, vandalism, water leaks or theft.

Renters insurance reimburses a renter for the cost of their possessions lost or damaged while on a rented property.

Homeowners insurance covers your possessions plus any damage to your house as well as the cost of repairing or replacing other damaged property, such as detached garages, sheds, fencing and gazebos.

Why you need it:

  • If you own a home, your mortgage lender requires it. The lender wants to be sure its financial investment in your home is protected if it’s damaged or destroyed.
  • Damage to your home can cost tens of thousands of dollars to repair. It would cost at least six figures to completely rebuild a home destroyed by natural disaster.
  • Replacing appliances, furniture, electronics and other valuables can also be expensive if damaged or stolen.

Auto insurance

What it is:

Automobile insurance covers you in the event you have damage to your own vehicle, cause damage to another person’s property with your car, or injure someone with your automobile.

There are three types of auto insurance coverage:

  • Liability coverage. This helps pay for damages in the event a collision causes injury or property damage.
  • Collision coverage. This is insurance to help pay for repair or replacement of your vehicle when it’s involved in an accident. If you own an older vehicle that isn’t worth much, you likely don’t need collision insurance.
  • Comprehensive coverage. This covers damage to your car that is not caused by an accident. Examples include theft, vandalism, flood, fire or hail.

Why you need it:

If you drive, it’s the law. Comprehensive and collision coverage are optional, but most states require liability coverage for bodily injury and property damage.

In addition, the average amount of an automobile insurance claim is nearly $5,000.

Umbrella insurance

What it is:

This is an optional benefit that may provide greater liability protection beyond the limits of a standard homeowners or automobile insurance policy. It provides coverage for anything that occurs beyond the limits of your standard insurance policy. Personal umbrella policies typically offer $1 million or more in liability coverage, up to $5 million.

Why you need it:

If your homeowners policy has a liability limit of $250,000, and you are successfully sued for $500,000, you would be responsible for the remaining $250,000. An umbrella policy, however, can cover that difference, minus your deductible.

Without umbrella insurance, you may be forced to sell assets to pay for damages not covered by your homeowners or auto policy. Your wages can also be garnished.


Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

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