Most people don't enjoy talking about or paying for insurance, especially in retirement. However, various perils are always right around the corner. Having the right types of insurance throughout your life can help soften the blows when major or minor calamities happen.
This article will discuss:
- Why you need insurance
- The 7 important types of insurance
- Instances where you need them
- If an insurance policy applies to you
WHY DO YOU NEED INSURANCE?
Insurance provides policy holders with total or partial protection in the case of loss, damage, illness, death, or another calamity. The following are some of the reasons people choose to purchase insurance:
PROTECTION FOR YOUR LOVED ONES
A loss of life or a large expenditure due to a disaster such as a house fire, can financially drain a household. Insurance can keep a household’s financial situation stable or close to stable in even in the worst circumstances.
REDUCE THE BURDEN OF STRESS AFTER A DISASTER
Unexpected tragedies can cause you and your family a great deal of emotional stress and grief for reasons other than the monetary aspect. By having insurance, the stress of not knowing how to pay for a disastrous event can be greatly reduced allowing you to concentrate on recovering in other ways.
PEACE OF MIND AND SENSE OF FINANCIAL SECURITY BEFORE A DISASTER
Regardless of your financial health, an unforeseen event could rapidly cause everything to fall apart. Insurance provides some peace of mind that you and your family can hopefully carry on in case of a future unexpected event.
KICKSTART A BUSINESS
Having insurance when running a small business or a family farm helps you mitigate the risks of ownership. With insurance, you may protect the owner, the business, and the employees. You may even offer group life, health, and disability insurance to the employees.
REQUIRED TO PURCHASE
Sometimes you are required to purchase insurance. For instance, nearly all states require auto insurance. Another common time insurance is required is if you are taking out a loan. An example would be home insurance while you have a mortgage or a set level of automobile coverage if you have a car loan.
7 TYPES OF INSURANCE THAT YOU NEED
There isn't one insurance plan that can cover all your needs. You will need to purchase multiple forms of insurance to be covered against the most common perils. Here are the top seven insurance categories that everyone should consider.
1. HEALTH INSURANCE
Health insurance protects against loss from unforeseen illnesses and accidents. People who experience a major health event without insurance can find themselves left with a five to seven figure medical bill.
That kind of financial hit could wipe your retirement savings and more.
In the event that you have health insurance through your employer, then this is where to start. If not so fortunate as well and need a comprehensive plan for yourself or family members alike it's worth shopping around on Healthcare Marketplace plans.
While the future of American healthcare is largely up in the air, and the Patient Protection and Affordable Care Act (PPACA) could be repealed or replaced at any time, you can still compare plans on the website Healthcare.gov for now.
With the help of some tax credits and subsidies, you can find health insurance that is more affordable. You might also want to buy tiered coverage with higher deductibles.
If you opt for a high-deductible health insurance plan (HDHP), then you can also open and contribute to a Health Savings Account (HSA).
2. LIFE INSURANCE
Life insurance should be considered on a case-by-case basis. However, if you have a home mortgage, other forms of debt, a spouse, or dependent children then the likelihood of it making sense for your situation increases. For instance, if a person is young and unmarried, their need for life insurance could be minimal. A retiree with no debt might not need any or much life insurance either. But for a family with 2 young children, a mortgage, and only one breadwinner, then life insurance coverage could be of great importance.
Life insurance can be complex, and premiums can vary greatly depending on the policy you choose and provider. The main driver of the cost is your age and health. Costs to purchase are lowest for young, fit, and healthy people.
3. LONG-TERM CARE INSURANCE
Long-term care insurance provides coverage for nursing homes, assisted living, or in-home care. People purchase long-term care insurance because the cost of care can quickly drain even the biggest of estates. According to the American Council on Aging, the average cost of a semi-private room in a nursing home in America in 2021 was $94,600 per year. The statewide average for Ohio was $87,600 per year.
These days there are two types of long-term care insurance, asset-based and premium based. Premium based long-term care requires payments over a long period of time. Often for life or until age 95. If you never need care, then you will likely not see any funds reimbursed.
Asset-based long-term care uses life insurance or an annuity as the chassis for paying for care. When care is needed the death benefit begins to be depleted to pay for care. Most policies even offer a continuation of care benefit that continues to pay for nursing home care after the entire death benefit is exhausted. The good thing about these policies is that if you never need long-term care your beneficiaries will receive some or all the premium back in the form of a death benefit.
4. HOMEOWNERS INSURANCE
Homeowners insurance covers your home and outbuildings whether they are partially damaged or destroyed entirely. It often covers replacement of items within your home as well.
Even if you have paid off your mortgage, getting home insurance will protect you from costs associated with property damage. It can also shield you from legal responsibility for harm and property loss brought on by your family, your pets, or other visitors.
When buying homeowners insurance, make sure the dwelling coverage is sufficient to rebuild your home. As home values go up, it is common for people to forget to raise their insurance coverage so be sure to evaluate your coverage every few years or more.
Sometimes homeowners choose to add additional insurance to their policies to cover high-cost items such as jewelry and artwork. They also may add insurance for things that their policy doesn’t cover at all. Examples could be identity theft, earthquake, and flood protection. It is important to review your policy so that there are no surprises in coverage.
5. AUTO INSURANCE
If you own a car, you are likely familiar with auto insurance. It is one of the most crucial types of coverage you may have. The four most common types of auto insurance coverage you can purchase are:
Most states have minimum requirements for liability coverage. Liability coverage includes the following:
- Bodily Injury Liability: compensates others for bodily injury or death caused by an accident in which you were at fault.
- Property Damage Liability: compensates others for damage to someone else's property caused by an accident in which you were at fault.
- Collision coverage: reimburses for damage to your car if it is an accident with another car regardless of who is at fault
- Comprehensive coverage: compensates for vehicle damage caused by theft, vandalism, flooding, fire, hitting animals, or other covered losses.
- Personal Injury Protection coverage: pays for your medical treatment, lost earnings, or other accident-related expenditures regardless of who is at fault.
- Medical Payments coverage: may pay for medical expenses incurred due to a car accident.
UNINSURED/UNDERINSURED MOTORIST COVERAGE
- Uninsured motorist coverage: may help reimburse you for injuries or property damage caused by an uninsured driver.
- Underinsured motorist coverage protects you from at-fault drivers who do not have enough insurance to settle your claim
6. UMBRELLA INSURANCE
Umbrella insurance offers protection over and beyond the limitations and scope of standard policies. It can cover injuries, property damage, specific litigation, and personal liability issues.
HOW IT WORKS
Umbrella insurance comes in handy in the following ways:
- When the limitations of your house, auto, or other policies are exhausted.
- Where other liability policies may not offer coverage on specific claims, including false arrest, libel, slander, and liability coverage on your rental properties.
7. DISABILITY INSURANCE
Many smaller organizations do not provide disability insurance, although most large corporations do. Disability insurance is designed for employed individuals to replace or partially replace your income if you experience a temporary or permanent disability. It is another way to provide financial protection if something happens to you.
Without disability insurance, you risk being unable to support your family or take care of your financial needs for months or even years if you are unable to work. It is a great type of insurance to have if you are a household with a single breadwinner.
Paying for insurance in retirement is just as important as when you were still working. In many ways, it can be even more important since you don’t have a salary from employment coming into the household on a regular basis.
Protecting yourself from any financial emergencies that can endanger your future is critical. Accidents, damage, incapacity, and death are already difficult to deal with without worrying about money. If you find yourself with a tight budget, you should do everything possible to avoid completely forgoing insurance if you need to reduce expenses.
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