Insurance and Coverage, Unpredictability is a part of life. Some are exciting, but others, like a car crash or a house fire, can be devastating. That’s why the market has developed numerous forms of insurance to help in the aftermath of misfortune.
In order to help you narrow down your search, we’ve outlined the most common categories of insurance.
Most jurisdictions make it illegal to operate a motor vehicle without proper insurance. Driving without insurance is illegal and can be very costly if you are involved in an accident, especially if you are found to be at fault. Thankfully, there are a few options for auto insurance that will cover costs associated with an accident:
- Liability coverage. This car insurance will help pay for medical expenses and repairs to other people’s vehicles if you cause an accident. Liability insurance is meant to protect you financially in the event of a lawsuit stemming from an automobile accident. This includes paying for legal representation and any settlements or judgments that may be issued against you. In every state except New Hampshire and Virginia, liability insurance is a legal requirement.
- Uninsured/underinsured motorist (UM) coverage. Medical bills for you and your passengers are covered if an uninsured or underinsured motorist causes an accident involving your vehicle. Compensation for pain and suffering and lost wages are two additional benefits provided by uninsured motorist coverage. UM coverage may be obligatory in your state. Furthermore, UM coverage can reimburse you for repairs to your vehicle if an uninsured or underinsured motorist causes them.
- Personal injury protection (PIP). In the event of an accident, PIP insurance will pay for medical expenses for you and your passengers regardless of fault. In addition to covering medical expenses, rehabilitation costs, and services like child care that you can no longer provide due to your injury, this insurance may also reimburse you for lost wages. PIP is mandatory in a number of states, but not in others, and it is not offered at all in a few.
- Medical payment coverage. In the event of an accident, MedPay coverage can assist with covering medical costs for you and your passengers. Insurance limits are typically low, falling between $1,000 and $5,000.
- Comprehensive and collision coverage. Damage to your vehicle will be covered by both of these policies. Your auto repair or replacement costs after an accident, regardless of who was at fault, will be covered by your collision insurance. Your vehicle is protected from loss or damage caused by theft as well as natural disasters, human acts of vandalism, and falling objects or animals. Optional coverages like collision and comprehensive are frequently packaged together. But if you get a car loan, the lender will insist that you actually purchase the vehicle. Leases on motor vehicles are subject to the same restrictions.
Home Insurance and Coverage
Homeowners insurance is not mandated by law in any jurisdiction like auto insurance is. If you financed your home purchase, however, your lender will likely insist that you purchase insurance to safeguard their investment. In the event of a natural disaster, you will be able to replace your home and keep paying your mortgage without incurring any financial hardship.
If something were to happen to your home, even if you paid cash for it, you would still be responsible for the costs associated with fixing it or replacing it if you didn’t have home insurance. Investing in a homeowner’s insurance policy is a prudent move.
Multiple forms of protection are rolled into one convenient package in the form of home insurance, including:
- Dwelling coverage. Dwelling insurance safeguards your home from perils such as fire, wind, theft, and vandalism, covering everything from the roof to the floor. Attached buildings, like a garage or a deck, are also covered in the event of damage or destruction. The cost to replace your home should be equal to or greater than the amount you have selected as dwelling coverage.
- Personal property coverage. You can protect your home from things like fire, wind, theft, and vandalism with dwelling insurance, which protects the entire structure, from the roof to the floor. Decks, patios, and garages are all included in this protection against disaster. Choose a dwelling coverage amount that is at least as high as what it would cost to rebuild your home.
- Other structures on the property. SIt protects things like a fence or tool shed that you’ve built on your property.
- Liability coverage. If you cause someone else bodily harm or damage to their property, your liability insurance will cover the costs. Furthermore, should you be sued, the legal costs associated with defending yourself are paid for by your homeowner’s liability insurance policy. If a guest trips and falls on your front steps, the liability insurance will cover their medical expenses and your legal costs. Your net worth, or the amount that could be lost in a lawsuit, should be the same as the amount of liability insurance you carry.
- Additional living expenses. If you have to temporarily move out of your home because of damage caused by an insured peril, additional living expenses coverage will reimburse you for incidental expenses like food and lodging.
Keep in mind that natural disasters like floods and earthquakes aren’t covered by a standard homeowner’s policy, but they are covered by specialized policies.
Renters Insurance and Coverage
Do not assume that you do not require insurance just because you do not own a home. Renters insurance covers the cost of replacing stolen or damaged personal property, such as electronics, furniture, and clothing. Natural disasters such as tornadoes, explosions, and fires are among those addressed.
If your rental house burns down, you’ll be on the hook for replacing all of your belongings if you don’t have insurance. Tenant belongings are not covered by a landlord’s insurance policy, but the building itself is. Landlords sometimes ask for proof of insurance before allowing tenants to move in.
Renter’s insurance typically covers the following:
- Personal property coverage. If your belongings (furniture, clothes, dishes, etc.) are stolen or damaged by an incident like a fire, this insurance will pay you back.
- Liability coverage. This insurance can help pay for medical bills and repairs to other people’s property if you’re found legally responsible for those things happening. If a guest at your apartment has an accident due to your carelessness, liability insurance can help cover the costs associated with the incident.
- Additional living expenses coverage. This provision will reimburse you for additional living expenses incurred in the event that your rental property is rendered uninhabitable due to damage or destruction caused by an insured peril.
Liability coverage is a standard feature of auto, homeowners, and renters insurance, and it safeguards your financial security in the event of a lawsuit. However, there are limits to how much you can be held responsible for under any given policy. If you have a lot to lose in court, your homeowner’s, renter’s, or auto liability insurance policy probably won’t cover the damages.
In the event of an unforeseen incident for which you are found liable, umbrella insurance can provide additional financial protection. Let’s say somebody trips on your sidewalk and breaks their back, and then sues you for $500,000. In the event that the damages exceed $300,000 but your liability limit is only $300,000, you will be responsible for paying the remaining $200,000. This additional expense would be covered by umbrella insurance.
Finding the most appropriate life insurance policy is crucial if other people rely on your income. Forty-four percent of U.S. households would face financial hardship within six months if the primary wage earner died—and for 28%, it would be just one month—according to LIMRA, an industry-funded research firm. In the event of your untimely demise, life insurance can be used to replace lost income.
There are two main types of life insurance policies, permanent life insurance and term life insurance.
Term life insurance
Ten, fifteen, twenty, or thirty years is the typical term length for rate locks in term life insurance. As long as this period continues, your monthly premium will remain unchanged. After the initial level term period ends, most policies can be renewed annually at a progressively higher premium.
Term life insurance is a good option if you need protection for a finite period of time (such as the cost of college) or a single debt. Term life insurance policies are typically the most cost-effective option.
Permanent life insurance
Coverage from permanent life insurance policies can last for the policyholder’s entire life. Permanent life insurance not only provides a death benefit, but also accumulates cash value over time. If the cash value grows, you can use it to pay off debt or withdraw emergency cash. The policy’s cash value is yours to keep if you decide to cancel your coverage (minus any surrender charge).
Permanent life insurance is a good option if you want to build cash value for retirement or if you need to provide a death benefit for someone who will depend on your income for a long time. Pricing for permanent life insurance is higher than that for term.
Whole life, universal life, variable life, and burial insurance are all examples of permanent life insurance.
According to the American Public Health Association, high medical costs are a leading cause of financial stress for many Americans. Healthcare.gov estimates that even a young, healthy person will spend around $30,000 on a three-day hospital stay. A loss of income to the extent that you are not insured could result.
Typically, your company will offer a health insurance plan. Health insurance plans are available for purchase through the federal health insurance marketplace if your employer does not provide coverage or if you are currently unemployed. If you meet the income and other requirements, you may be eligible for financial assistance with the cost of a health insurance plan purchased through the federal marketplace.
You can also get covered by contacting insurance providers straight or working with a broker or agent who specializes in the healthcare industry.
Investigate the prices of high deductible health plans if the monthly premiums seem out of reach. You’ll have to pay more out of pocket before your health insurance kicks in, but your monthly premium will be less with this plan.
If you have a high-deductible health insurance plan and a Health Savings Account, you can put away money for medical expenses without having to pay taxes on the earnings.
Health insurance is only available for purchase during the open enrollment periods offered by insurance providers. The period of open enrollment for marketplace plans is typically from November 1st to December 15th, though the deadline may be extended by some states.
Certain life changes, like getting married or having a baby, may qualify you for an extension of the open enrollment period.
Disability Insurance and Coverage
One common misconception is that disability insurance is only necessary for those with hazardous occupations. While some impairments may affect one’s ability to work, this is not the case for the vast majority. The Council for Disabilities Awareness cites these four diseases and chronic back pain as four of the leading causes of disability in the United States. That’s why including disability insurance in your financial strategy is so important.
Disability insurance helps replace lost income in the event of sickness or injury that prevents you from working. It can replace anywhere from 40% to 70% of your regular income, but there’s usually a waiting period before payments begin and a maximum amount per month.
If you can’t work due to a disability and aren’t eligible for Social Security disability benefits, you still have two options for obtaining disability insurance:
- Disablement benefits for employees as a group
- You can protect yourself financially with private disability insurance.
Long-Term Care Insurance
Statistics from the US Department of Health and Human Services show that of all adults who reach the age of 65, 70% will require long-term care services at some point. Inevitably, most elderly people will require some form of assistance, whether it’s occasional help around the house or a more permanent placement in a nursing home. To add insult to injury, long-term care is extremely expensive. Private nursing home rooms cost around $9,000 per month, as reported by Genworth, a provider of life and long-term care insurance.
In-home care, adult day care, and nursing home stays are just some of the long-term care (LTC) services that can be covered by insurance. Long-term care insurance is most cost-effective when purchased in one’s fifties or sixties. Typically, the best rates for purchasing insurance are available between the ages of 18 and 29. The cost of long-term care insurance rises with age.
Research thoroughly before making any purchases. Recently, many policyholders have been hit with unexpectedly high premium increases, rendering their insurance plans unaffordable. There is a comprehensive overview of long-term care insurance available from the Congressional Research Service.
You can purchase a policy that includes both life insurance and long-term care insurance, or you can add long-term care insurance as a rider to your existing policy.