Buying insurance is like buying tires for your car or a new roof for your house — unquestionably necessary but nothing about which to get excited. At least the tires and roof are immediately put to use, but with insurance, the hope is that it is never used at all. Who wants to have an auto accident just so they can use their auto insurance? We all are thankful, however, when the unforeseen happens and the insurance is there to protect our financial assets, and it gives us the comfort of knowing our loved ones are taken care of.
A myriad of different insurance policies cover a multitude of risks, but what are the essentials that everyone should have in order to navigate the world we live in with sufficient armor? The answer to that question depends somewhat on your age and station in life, but everyone should have a basic layer of protection that may be added upon as age and responsibilities grow over time. Here are a few.
Auto Insurance
Let’s start off with one that is mandatory if you own a car — auto insurance. The average loss from auto accidents is $1,057, and that amount is rising rapidly with inflation. Basic auto insurance covers damages for you and the other party in the accident if it is your fault. It also covers liability for cost of injuries. South Carolina requires minimum coverage of $25,000 per accident for property damage as well as $25,000 per person bodily injury and $50,000 for all persons injured in one accident. Auto insurance also has comprehensive coverage for damages occurring from other causes, such as storms or vandalism.
Health Insurance
Going without health insurance is extremely risky. Sixty-seven percent of bankruptcies derive from medical debt. Most large employers offer some form of health insurance but many small businesses do not. Catastrophic plans with high deductibles and out-of-pocket costs can save on premiums, but be prepared to pay those upfront costs in case of emergencies. One way to do this is to fund a Health Savings Account. HSAs provide tax deductions, tax-free growth, and tax-free withdrawals for medical purposes.
Homeowners’ Insurance
Although homeowners’ insurance is not required by law, banks will not issue mortgages unless you have it. Extended dwelling coverage is worth considering. With this added coverage, the insurance company will pay beyond the initial coverage up to a certain point. Depending on the policy, they could pay as much as 20 to 25 percent more.
Homeowners’ insurance has different com-ponents that cover various aspects associated with the home. The three basics are dwelling, personal property, and liability.
Dwelling coverage should be in an amount equal to the cost of rebuilding your home. It covers most unexpected events, such as wind and fire, but does not cover floods or earthquakes. These can be purchased as a separate policy.
Personal property coverage is insurance for the contents of your home and is usually set at 50 to 70 percent of the home value.
Liability insurance protects the homeowner from any damages awarded from an accident that has taken place at the premises of the home. The amount of coverage should equal the net worth of the policyholder. In addition to homeowners’ insurance, an umbrella policy can be taken out for additional liability coverage in case the homeowners’ policy does not provide sufficient coverage.
Life Insurance
Life, disability, and long-term care insurance are all policies that basically benefit others as much as yourself. The goal is to protect you and those you love from financial hardship.
Life insurance provides for dependents who rely upon the income from a person who unexpectedly dies. In most cases this is a parent and income producer for a family. Almost half of all U.S. households would face financial difficulties if the primary wage earner were to die unexpectedly. Term life insurance, the most affordable, allows a person to lock in rates for a number of years. At the time of renewal, rates will go up because the age of the person being insured has increased. Rates are usually affordable until a person reaches their 60s, by which time life insurance may not be needed. Permanent life insurance provides lifelong coverage but at a higher initial cost. These policies also have a cash value component that builds over time.
Disability Insurance
Disability insurance is another way to protect income from unforeseen circumstances that render a person unable to work. Health-related issues that may not come from dangerous occupations but are risks to all, such as various diseases or physical accidents, can jeopardize family income from loss of wages. The disability benefits that Social Security provides may not be enough, requiring a supplemental individual or group policy to fill the gap.
Long-Term Care Insurance
Long-term care insurance provides for the needs of senior adults who no longer can take care of themselves. Anyone turning 65 years of age has a 70 percent chance of needing long-term care sometime in the future. This type of insurance covers in-home or nursing home care, but it is not cheap. Policies usually provide benefits reflected as a daily rate such as $250 per day. It is more economical to purchase a long-term care policy while in your 50s or 60s instead of waiting until later.
Although buying insurance may not be as fun as buying a new car or house, you definitely need insurance to protect those more exciting assets. Knowing that, if the worst happens and financial loss occurs, you are covered and can be paid back for those losses is a source of great comfort and peace of mind. More importantly, most of us have loved ones who rely on and need us in some form. Having the right insurance is one of the greatest gifts you can give them by knowing that their needs will be met if you are disabled or no longer here to provide for them. The essential insurance described above gives us the armor we need to carry on with life knowing that we are protected from the arrows of misfortune.