Jim Wang
Jan. 31, 2020
Most people, including myself, have a love-hate relationship with insurance. Paying monthly premiums can be annoying yet the peace of mind can be worth it.
I’m not here to sell you insurance. I loathe every advertisement my bank mails to me.
While you shouldn’t buy into every insurance pitch, several types of insurance are worth it. Chances are you’re not a celebrity who needs to insure a specific body part. But we all have people and possessions we want to protect.
If you’re looking to protect your most valuable assets and maximize your money skills, the right kind of insurance can be a effortless way to hedge risk.
Term Life Insurance
Life insurance is one of those products that’s easy to ignore because we always want to feel young and invincible. However, it’s wise to have a financial plan in place for your family.
Unless you can self-insure, term life insurance is your best option. This type of life insurance tends to offer the highest coverage amounts at the lowest price.
You should get enough coverage to cover your current debts and replace your annual income for at least one year. Play with the coverage amounts and term lengths to find your ideal policy. Consider getting a policy for you and your spouse even if you employer offers term coverage.
Depending on your age, it’s possible to qualify for a coverage term as long as 30 years. Long-term policies tend to have higher monthly premiums, but you can spend less in the long run compared to renewing a shorter-term policy.
You might get a short-term policy to cover a temporary financial gap. For instance, maybe you still need a few years to repay credit card debt or a personal loan. A five-year term equivalent to the current balance can protect your family finances just in case.
Disability Insurance
After getting sufficient term life insurance coverage, consider disability insurance. If for some reason, you can no longer work, most policies let you draw between 60% and 80% of your pre-disability income.
Your monthly premium mostly depends on three main factors:
- Monthly benefit amount. The dollar amount you can receive each month.
- Coverage term length. How long your policy remain in effect from the start date.
- Waiting period to start receiving benefits. The minimum number of days you must be fully-disabled before you can begin collecting monthly benefits.
Also, your occupation, age, and where you live can affect your quote price.
Most disability insurance policies let you obtain coverage until age 65. However, these policies are usually more expensive than shorter coverage terms. Like term life insurance, you can choose a term length as short as one year.
If you’re 30 years old and get a five-year term, you have disability insurance until age 35, for instance.
If you’re not ready to purchase a personal policy, you might qualify for Social Security disability insurance (SSDI). You already pay into this social program with each paycheck. If you qualify, your monthly benefits may not be as much as you need to make ends meet.
Umbrella Insurance
A reinsurer underwrites any legit insurance company. If the insurance company has too many major claims, the reinsurance company benefits can cover the funding gap.
Umbrella insurance can be your personal equivalent of having a reinsurer. This type of insurance doesn’t cover every insurance claim. For example, you most likely can’t use an umbrella policy for business losses or criminal acts.
Eligible claims can include personal injury to yourself or another person and damage to another person’s property. In short, umbrella insurance backs up your auto, homeowner’s, and landlord insurance.
Umbrella insurance is a unique insurance product that can most benefit high net worth households. But it can be worth it when you feel your legally-required insurance products don’t provide enough coverage for the worst-case scenario.
Travel Insurance
Travel insurance isn’t worth it for short weekend trips, but it’s a good idea for pricey itineraries. This product can protect non-refundable travel purchases, medical expenses, and peace of mind when your possessions get damaged, lost, or stolen.
The credit card you use to book your non-refundable travel purchases like flights get canceled for covered events such as extreme weather or sudden illness.
Most Visa and Mastercard credit cards offer secondary rental car collision insurance. This perk lets you decline the rental car agency’s collision damage policy to save a few dollars. These benefits can activate after your primary auto insurance benefits apply for a qualifying incident.
Buying a standalone travel insurance policy can be worth the purchase for these items:
- Emergency medical assistance and evacuation. Your medical insurance likely doesn’t cover overseas medical treatment or transportation costs, even if it’s an emergency.
- Trip cancellation or interruption coverage. Get compensation for non-refundable travel purchases or booking alternate travel to return home.
- Lost or delayed luggage. Receive reimbursement for essential purchases like clothing and toiletries when the airline doesn’t.
- Scheduled airline failure insurance (SAFI). If an airline goes bankrupt, you can still claim a refund for your ticket purchases.
- Cancel for any reason. Get a refund even if you have to cancel at the last-minute due to work or personal reasons not covered by the carrier or credit card.
You may not need a policy that includes every coverage option. It’s possible to get bargain-priced policies with basic coverage amounts. All-inclusive plans can cost significantly more but can be worth the extra peace of mind for exotic getaways.
Identity Theft Insurance
Do you find yourself using internet-based services more and more each year? For years, we have been using the internet for routine tasks like online banking, investing, and shopping.
As more of our personal data, the risk of having this information compromised in a data breach increases. The Federal Trade Commission (FTC) reports identity theft increased by 15% from 2017 to 2018.
Identity theft insurance can limit your out-of-pocket expenses if you must restore your identity. This insurance can reimburse attorney fees, legal costs, unpaid time off of work, and incidental charges from financial institutions. Your exact coverage amounts vary by insurance provider.
The quickest way to obtain coverage is by enrolling in a premium credit score monitoring service. You can receive monitoring alerts plus regular credit score and credit report updates.
Renter’s Insurance
If your landlord doesn’t require renter’s insurance, you should strongly consider getting it.
Your landlord likely has “landlord insurance” generally protects the structure. Their insurance benefits may cover structure damages or bodily injury-costs related to events such as fire, lightning, and hail.
However, their insurance policy probably doesn’t insure your personal possessions if disaster strikes. That means you’re financially responsible for replacing your items.
Renter’s insurance can also cover bodily injury or property damage you’re liable for. If you have someone visiting who makes a poor decision, your renter’s insurance can reimburse the first portion of any related damage or injury.
Home Warranty
Homeowners have two protection options of homeowner’s insurance and a home warranty. While they sound similar, both cover different expenses.
If you’re a homeowner still making mortgage payments, you have homeowner’s insurance. This insurance protects the structure of your home. Examples include broken water pipes, natural disasters, or bodily injury.
A home warranty can cover the repair and replacement costs for the systems and appliances within your home.
Most home warranty plans cost approximately $600 per year and you pay a fixed service fee for each service call. Ideally, the warranty covers the remaining repair costs.
If you don’t have the time or skills to repair defective appliances or figure out why the HVAC system unexpectedly stopped, a home warranty can save you a small fortune in repair bills.
Health Insurance
If you don’t have employer-provided medical insurance, you should still get medical insurance of some sort. Whether you get a policy from your state health care exchange or use a health-sharing ministry, you can save thousands if you need extensive medical care.
One ay to save on medical costs is by contributing to a health savings account (HSA). You likely qualify for an HSA if you have a high deductible health plan (HDHP). For a family, your minimal deductible must be at least $2,800.
Auto Insurance
Most states require automobile owners to carry a minimum amount of liability insurance. This coverage helps pay for injuries and damages to the other party when you’re responsible.
You might consider increasing your coverage as the average insurance claims for your area may be higher than your coverage limit. You may have to pay for the difference from your own wallet.
Liability insurance doesn’t reimburse your own repairs and medical costs. You will need collision and comprehensive coverage to protect your own vehicle and passengers.
It can be worth getting this additional coverage when you can’t afford to replace your vehicle if it were totaled today or your vehicle is only a few years old but you don’t have a car loan. After all, you don’t know when someone might collide into you or a freak act of nature may occur.
Hopefully, you never have to use your insurance benefits. (well, good luck avoiding life insurance!) But if you do, the cost savings from a single claim can be worth more than years of payments.
Protect your most valuable assets first and then consider getting extra coverage to bring complete financial peace of mind.
This article was written by Jim Wang from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.
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This Forbes article was legally licensed through AdvisorStream.
