5 types of insurance to keep you and your assets safe

Whether you’re concerned about covering your mortgage, managing unforeseen costs, or providing for your family in case you pass away, you can turn to insurance to cover you and provide peace of mind.

But with so many different types of insurance out there, it’s easy to feel overwhelmed. Where do you start? 

This guide walks through the essential insurance types to consider. It’s what most experts consider the low-hanging fruit coverage that can defend you against unwanted surprises at every stage of your life.

Pop quiz: How many types of insurance do you currently pay for? 

Health insurance for your family and your pets might be top of mind. Then there’s insurance you need to have for driving. And there might be one-offs, like travel insurance for an expensive trip. Got a number in your head?

OK, did you include Medicare, Social Security, and unemployment? They’re all insurance programs you and/or your employer pay for to help you if you become disabled or unemployed. And they help pay for expenses later in life so you can retire. 

Did you also consider depositor’s insurance, which protects the money you have in the bank? 

Insurance is used by governments and businesses to provide stability and promote a healthy economy. 

As you spend your lifetime building your personal wealth, it’s also important to take proactive steps to protect yourself and your family from large financial losses. Imagine insurance as a toolbox, with each policy designed to handle a different financial threat you could encounter in your daily life. 

Here’s a quick peek at five common types of insurance people use to keep their finances on track:

Almost all states in the U.S. require drivers to have some form of auto insurance coverage. A bare-bones policy typically covers liability for any damage or injury you may cause to others. It includes coverage for accidents involving underinsured or uninsured drivers, personal injury, and medical payments. 

If you finance or lease a car, lenders often require you to purchase full coverage policies. These include collision coverage, which pays to repair or replace your vehicle, and comprehensive coverage if it’s stolen. Most people buy full coverage policies. With new cars averaging over $40,000 and used cars becoming increasingly expensive to fix, they simply can’t afford to be left uncovered. It’s something to think about.

Your home is likely the biggest investment you’ll ever make, and for many homeowners, it’s also their primary source of wealth. You don’t want it to go up in smoke — literally! 

Homeowners insurance covers your house and belongings against fire, weather events, theft, and vandalism. It will also cover legal costs and damages others experience on your property. 

This insurance is required in order to get a mortgage to buy a home. It’s a smart investment, unless you have the massive funds on hand to rebuild your home and replace your valuables in case of a large loss, like a fire. 

If you rent instead, you might consider renters insurance, which covers the contents inside your apartment or home. The owner will likely have a landlord policy to cover the structure.

To protect your home and valuables, check out our homeowners insurance and renters insurance guides.

What if illness or injury sidelines your income-generating abilities? Disability insurance replaces a portion of your paycheck if you become unable to work.  According to the Social Security office, one in four 20-year-olds will become disabled for more than one year before they retire. 

Many employers offer both short- and long-term disability insurance, which can be a good option. If not, you can purchase it from a disability insurance company. The best policies replace 40% to 70% of your income.  

Short-term disability covers 40%–70% of an employee’s salary for a few weeks and up to a year due to common conditions such as pregnancies, broken bones, and back pain. Long-term disability can cover roughly 60% of your salary if you are unable to work longer due to reasons such as cancer or mental health issues. You’ll want to be aware of potential waiting periods and limitations on the coverage.

Read “Disability insurance: Your safety net explained” for the basics of protecting yourself if you lose your ability to work.

Life insurance ensures that your loved ones aren’t left financially stranded if you pass away. There are two main types of life insurance. Term life insurance provides coverage for a set number of years and pays out a death benefit if you pass away during the term of the policy. 

Alternatively, whole life is permanent life insurance that doesn’t expire as long as you pay the premiums. Besides paying out if you die, it offers an investment vehicle component to build funds you can use or borrow against during your life. Some people tap their whole life policies to make large purchases or pay for their kids’ college.

Factors to consider when deciding on life insurance include your yearly earnings, if you have young kids or other dependents, future educational costs, and funeral expenses that the policy could cover.

No matter how careful you are, we live in a litigious society, and you might find yourself getting sued. Let’s say your dog accidentally tackles your neighbor, sending them to the ER. Personal liability insurance kicks in to defend you against lawsuits and pay for injury or damage you or members of your household are on the hook for. 

You will generally find coverage for personal liability in your homeowners or renters policy, but coverage amounts are often limited to $100,000 to $500,000. If you feel that you need additional coverage, you can increase your personal liability coverage limit by purchasing an umbrella policy from your insurance company. The umbrella policy will require you to carry a certain liability limit, so it may be beneficial to enlist the help of an insurance agent or broker to purchase coverage.

No two people will have the exact same insurance needs, which is why it’s crucial to tailor what insurance you buy to your specific situation. Here’s how to craft your insurance plan:

• Consider your life stage: A young single adult might prioritize auto insurance, while a family with a mortgage might also need life insurance.

• Evaluate your assets: The more you have to lose (house, car, etc.), the more robust your insurance needs to be. It might also put a target on your back, so you might give thought to beefing up personal liability coverage on your homeowners insurance and buying an umbrella policy.

• Budget honestly: Insurance premiums are an investment, so factor them into your monthly expenses and financial plan.

• Compare quotes: Don’t settle for the first quote! Get proposals from a few different insurers to find the best coverage at the most competitive price. Check Trustpilot reviews. They can be a great resource to see what other customers have experienced with different insurance companies.

Even the savviest buyer can make mistakes. Here are some insurance faux pas to avoid:

• Not shopping around. I can’t stress this enough. If you don’t get quotes from other insurance companies periodically, you could be paying more than you need and not getting competitive coverage terms. Here’s how one customer used the insurance comparison website, Insurify, for major savings.

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• Letting your policies lapse: The worst situation is submitting a claim, only to be denied because your policy was canceled for non-payment.

• Thinking basic auto insurance is enough: Comprehensive and collision coverage provide invaluable protection for your car.

• Neglecting disability insurance: While you might be healthy now, accidents and illnesses can happen anytime.

• Assuming your home insurance covers everything: Flood or earthquake damage will likely require separate policies. Further, don’t expect a claim to be paid if you have neglected your home.

• Not giving timely notice of a claim: An insurance policy is a legal contract that is enforced as long as you obey its rules. Most insurance requires notice as soon as possible. You risk denial otherwise.

• Forgetting to update your policies: Your insurance needs evolve as your life does. Regularly review and adjust your coverage accordingly. If you need help, enlist an insurance broker, or talk to your insurance agent.

It can take a lifetime to build personal wealth and just one moment to potentially destroy it if you aren’t covered by insurance. Don’t be afraid to delve deeper! You might find that some insurance may not be worth the cost or the hassle. And whether you prefer to work with an insurance broker, or buy insurance online, you have options. 

Check out reviews, like this one about auto insurer American Collectors Insurance, to get a sense of the claims process and customer service before you select your carrier. 

Remember, a little insurance know-how can go a long way toward protecting your assets and ensuring a smooth ride, even when life throws its inevitable curveballs.

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