Ten Insurance Policies You Need To Own

The following is a guest post from Hank who writes about personal finance on Money Q&A.

I wish I had more insurance coverage. How many times do you actually hear that or say that to yourself? Most people hate talking or even thinking about insurance. It isn’t a pleasant subject. In fact, more people would rather visit their dentist for a filling than think about the types or amounts of insurance that they need to purchase in order to protect themselves, assets, and families. There are an incredible number and array of different types of insurance policies that you can purchase and quite a few that you should own. You may look at the number ten and think that is just way too many, but when you get right down to it, they might be just right to keep you and your family protected.

Ten Insurance Policies You Need To Own

1. Disability Insurance – A third of Americans will find themselves disabled and unable to work at some point during their careers. In fact, almost half of all home foreclosures are a direct result of people being disabled and unable to work. While disability insurance may be an expensive addition to your insurance coverage, it is well worth having it protect your future income. You can choose to purchase long-term disability insurance that does not start until you have been disabled for over six months in an effort to save money on your premiums, but of course this assumes that you have a fully funded emergency fund in place to cover you until then.

2. Umbrella Insurance – No longer is umbrella insurance something that only the rich need to purchase. We continue to live in an ever-increasing litigious society that is quick to sue each other over the smallest issues. People mistakenly think that they will not be sued if they do not have much in the way of assets, but they often forget their most important asset of all, their future income. The cost of umbrella insurance is incredibly small for the large amount of liability insurance coverage that you obtain as a result.

3. Long-Term Care Insurance – Almost 70% of Americans will require some type of care such as an in-home nurse or a nursing home after they reach the age of 65. A year-long stay in a nursing home can cost $60,000 per year or more depending on the amenities. That can quickly eat up any savings or retirement nest egg that you have spent decades to accumulate. Long-term care insurance can provide you with money to live out your last years comfortably while not depleting your retirement portfolio that your spouse may later need.

4. Term Life Insurance – Term life insurance is one of the best deals in personal finance and provides an excellent amount of life insurance coverage for a specific period of time. There are very few needs in life for permanent insurance, and most people find themselves not requiring life insurance after their home mortgages are paid off and their children are grown. Term life insurance can fill the gap when you need life insurance the most while keeping your premium costs low.

5. Health Insurance – Not having health insurance is one of the fastest ways to find yourself in financial trouble and possibly on the way to bankruptcy. One accident or significant illness without coverage can leave you holding hundreds of thousands of dollars in medical bills if you are not careful. If you are recently out of work and without coverage, you may want to consider purchasing COBRA insurance coverage for you and your family or even catastrophic health insurance coverage until you can hopefully receive coverage through a group plan with an employer.

6. Renter’s Insurance – Homeowners with mortgages accept homeowner’s insurance as a fact of life, but far too many renters go without purchasing renter’s insurance. This is a huge mistake. For as little as $20 per month, you can purchase renter’s insurance that will protect your assets from theft, fire, liability, and many other disasters. Renters often mistakenly think that their landlord’s insurance policy will cover them, but the policy only provides protection for the building and not your items inside your rental home or apartment. Too many renters are risking huge losses by not owning inexpensive renter’s insurance.

7. Flood Insurance – Flood insurance is not simply for homeowners who live in a flood zone. In fact, FEMA estimates that one third of all homes damaged by flooding are not even in a flood zone or near a body of water. Flood insurance is very cheap, costing just a couple of hundred dollars per year, if you do not live in a federally designated flood zone. It is a critical piece of insurance protection that too many homeowners are lacking.

8. Earthquake Insurance – Most homeowners realize that their typical homeowners insurance policy does not cover them for earthquake damage, and many simply think that they do not need coverage because they live so far from a fault line. But, the unusual recent earthquake along the northeast coast of the United States shows that earthquakes can strike almost anywhere in the country. You could find yourself paying a hefty amount out of pocket if you are not covered and an earthquake damages your home.

9. Rider Or Floater Insurance – Did you know that your homeowner’s insurance and renter’s insurance only covers a small amount of losses on specific items such as electronics, artwork, and jewelry? In many cases, the amount of coverage in a basic homeowner’s insurance policy is limited to as low as $2,500. One nice engagement ring and wedding band can quickly eclipse your coverage limits, but you can add a floater insurance policy or a rider on your current homeowner’s insurance that can add extra insurance coverage for specific items. These insurance policies are called riders because they ride the coattails of your primary policies, and the additional insurance can be bought for a very low sum.

10. Title Insurance – Title insurance is something that homeowners are very familiar with, but you can also buy title insurance for other large purchases as well. If you are considering purchasing an expensive used car, for example, you may want to consider buying separate title insurance as well. Like purchasing a home, title insurance can protect you from a fraudulent seller or undisclosed damage to the property that would ultimately make reselling it a nightmare.

Do you really need ten different types of insurance policies? Maybe you do and maybe you don’t. But, do the risks of not having these policies outweigh their costs? In many cases, you are taking potentially devastating financial risks by not having these insurance policies in place even though they ultimately have very low premium costs. The benefits of owning these insurance policies far outweigh their costs.

Comments

[Kevin @ Debteye]

This is a great summary for those who aren't familiar with how insurance works. It can definitely be a confusing topic that's hard to understand.

[Old Limey]

Sounds like Hank is a shill for the insurance industry.
Admittedly I'm 77, retired, and pretty wealthy but all I have from the list are an Umbrella policy and Healthcare through my ex employer's group insurance policy.
Two he didn't list are car and homeowner insurance policies. There is such a thing as being "Insurance Poor".

[Neo]

What is umbrella insurance, I don't even know what that is? Looks like I have some homework to do. Why is it so important?

I have most of the other types and I just picked up life insurance since I have a baby on the way.

[FMF]

Neo --

This may help:

http://www.freemoneyfinance.com/2011/01/why-you-need-an-umbrella-insurance-policy.html

[Apex]

@Neo,

An Umbrella is what they call an all inclusive liability policy that covers you against any claims of fault or negligence on your part for you actions or as a result of something that happens on property that you own.

As a landlord I consider it critical and the second most important insurance next to the insurance directly on the property.

I carry a personal umbrella to cover all my non-business assets for up to 2 million dollars and I carry liability insurance in the amount of 1 million dollars as part of the homeowners insurance on each individual property and then I also carry a separate commercial umbrella for another 1 million that protects all the properties in aggregate. So I have 2 million dollars of liability coverage on all my personal assets and 2 million dollars of coverage on each real estate property.

You don't need to have 2 million dollars worth of property to want that much coverage. If you have 1 million dollars of property and 1 million dollars of liability coverage and someone wins a judgement against you for 2 million dollars they will take 1 million from your policy and then take the other 1 million from your assets.

The personal Umbrella is about 200 bucks a year and the commercial one is about 300. That is far cheaper than trying to protect my real estate assets in some other fashion through complicated corporate structures and individual LLC companies on each property or something like that which I know some real estate investors do. That creates an accounting nightmare and I am not convinced it will hold up in court anyway. Piercing the corporate veil is not that hard if you don't do everything perfectly. This is far cheaper and in my opinion far safer. If someone wants to sue me because they injured themselves at my property or for some other crazy reason, I have an insurance company that does not want to pay them and will be happy to go to court to fight them for me. And if they lose in court it will have to be for more than 2 million before I owe anything.

[Apex]

I also agree with Limey that this list is overkill and his comment about being insurance poor is accurate.

For a young working family person the first 6 minus long term care are important. (if not renting then homeowners insurance). As you get older long term care may be worth looking into.

The last 4 are stretching a bit into the absurd. He forgot number 11. Asteroid insurance. At some point, you just don't insure for crazy crap.

[billyjobob]

Certanly not a list for everyone. I have no kids and my home is payed for. I don't have or need any life insurance. And I'm going to roll the dice on the earthquake insurance also. Sure I'll be upset if my one story home in SW Michigan is damaged in an eartquake. But I really feel the odds are in my favor. Its just to unlikely to happen.

[rhorgan]

And after buying all this insurance the next thing you will need is food stamps because you are now Insurance poor but well protected.

[alex]

This is the most comprehensive article about insurance that I've read so far. These are all really the types of coverages that we should be aware about.

[Ginger @ Girls Just Wanna Have Funds]

I think for the most part this applies to mostly everyone given the situation.

Earthquake and Flood insurance are 2 that standout as 2 years ago I'd never believe we should consider it but after the hurricanes and floods of 2011 -we might have to seriously consider them.

[Ginger @ Girls Just Wanna Have Funds]

I think for the most part this applies to mostly everyone given the situation.

Earthquake and Flood insurance are 2 that standout as 2 years ago I'd never believe we should consider it but after the hurricanes and floods of 2011 -we might have to seriously consider them.