Life is full of surprises. while some are exciting, others are emotionally and financially devastating, like a car accident or a kitchen fire. That’s why there are many types of insurance to help after unexpected disasters.
To help you sort through your options, here are the main types of insurance policies.
Driving without auto insurance is illegal in almost every state. Not only is it illegal to drive without coverage, but it could cost you dearly if you’re in an accident, especially if you’re at fault. Fortunately, several types of auto insurance can pay for vehicle damage and injuries after an accident:
- Liability coverage. This type of auto insurance pays for property damage and injuries you cause to others if you are at fault in an accident. Liability insurance also pays for your legal defense and lawsuits or settlements if you are sued because of a car accident. (except new hampshire and virginaa) require a minimum level of liability insurance to legally drive.
- uninsured and underinsured motorist (um) coverage. if a driver If the uninsured or underinsured hits your vehicle, this coverage pays for your medical expenses and those of your passengers. Uninsured motorist coverage can also pay for lost wages and compensate for pain and suffering. some states require um coverage. and in some states, um coverage may also cover damage to your car by the uninsured or underinsured motorist.
- personal injury protection (pip). regardless who was responsible for an accident, PIP insurance can cover injuries for you and your passengers. This coverage can also reimburse you for lost wages, rehabilitation costs, and services such as child care that you can no longer perform after you are injured. many states require pip, but it is optional in others, and in some states it is not available.
- medical payment coverage. medpay coverage helps pay medical expenses for you and your passengers if you are injured in an accident, regardless of fault. coverage amounts are typically low, typically between $1,000 and $5,000.
- Comprehensive and Collision coverage. These types of coverage work together to pay for damage to your vehicle . Collision insurance pays to repair or replace your car after an accident, no matter who was at fault. Comprehensive insurance covers theft and damage to your car due to floods, hail, fire, vandalism, falling objects and blows from animals. collision and comprehensive coverage are often sold together and are optional. however, if you finance your car, your lender will require you to buy it. the same goes for car leases.
related: best car insurance companies
Unlike auto insurance, no state law says you must have homeowners coverage. however, if you financed your home, your lender will generally require coverage to protect their interest in your property. This way, if your home is damaged or destroyed, you have funds to rebuild and won’t give up on your mortgage.
Even if you don’t have a mortgage and paid off your home, you’re still responsible for repairs or replacement costs if something damages or destroys your home and you don’t have home insurance. it is advisable to buy a home insurance policy.
Home insurance policies include several types of coverage, including:
- dwelling coverage. From your roof to your floors, dwelling coverage protects the structure of your home from unexpected events such as fire, wind, theft or vandalism. This type of coverage also pays to repair or replace structures attached to your property, such as a garage or deck. the amount of your homeowners coverage should be equal to the cost to rebuild your home.
- personal property coverage. this type of coverage protects your personal belongings, such as furniture, appliances, and clothing. covered problems include theft, fire, and explosions. Personal property coverage is generally set at an amount between 50% and 70% of your dwelling coverage. you can usually buy more coverage if you need more.
- Other structures on the property. Structures on your property, like a tool shed or fence, are covered by this type of coverage.
- Liability coverage. Liability insurance pays for injuries or property damage you accidentally cause to others. Additionally, liability insurance covers your attorney fees if someone sues you. therefore, if a visitor falls on your front steps, liability coverage can pay for your medical bills and your attorney fees. the amount of your liability insurance must be equal to your net worth or what could be taken from you in a lawsuit.
- additional living expenses. if you are temporarily displaced from your home because it is damaged by a problem covered by your policy, additional living expenses coverage pays additional costs, such as meals and lodging.
Remember that a standard home insurance policy does not cover flood or earthquake damage, but separate insurance is available for these issues.
Related: Best Homeowners Insurance Companies
If you don’t own a home, that doesn’t mean you don’t need insurance. Renters insurance helps you replace your belongings, like electronics, furniture, and clothing, if they’re stolen or damaged. Covered issues include fires, tornadoes, explosions, and more.
Without coverage, you’d be responsible for replacing all of your stuff if your rental caught fire. While your landlord’s insurance will cover damage to a rental structure, it does not cover the renter’s property. In some cases, owners will require proof of coverage to rent a unit.
renters insurance includes:
- personal property coverage. this coverage reimburses you if your things (furniture, clothing, dishes, etc.) are stolen or damaged by a problem such as a fire.
- Liability coverage. If you are responsible for another person’s injury or property damage, this coverage may pay the cost involved. for example, if someone falls in your apartment due to your negligence, liability insurance may pay your medical bills.
- additional living expenses coverage. if your rent is damaged or destroyed by a problem covered by the policy, making it uninhabitable, this coverage will pay your additional costs while you are unable to live in your home.
related: the best renters insurance companies
Auto, home and renters insurance comes with liability coverage that protects you and your family’s assets from lawsuits brought against you. but each policy has liability limits. If you have substantial assets, your homeowners, renters, or auto liability insurance may not be enough if you lose an expensive lawsuit.
Comprehensive insurance can provide additional liability insurance if something unexpected happens and you are responsible. For example, let’s say someone sues you for $500,000 in medical bills after tripping on your sidewalk and hurting his back. If your home insurance liability limit only goes up to $300,000, you are responsible for the remaining $200,000. general insurance would cover this additional cost.
If someone is financially dependent on you, finding the best life insurance for their situation is critical. Forty-four percent of US households would face financial hardship within six months if the main earner died, and for 28%, it would be just one month, according to limra, an industry-funded research firm. life insurance is a way to replace your income if you die unexpectedly.
Life insurance policies generally fall into two main groups: term life insurance and permanent life insurance.
term life insurance
Term life insurance allows you to lock in rates for a set period of time, such as 10, 15, 20 or 30 years. during this time, your premiums are level. once the tier term ends, you can typically renew the policy annually, but at a higher cost each time.
If you want to cover a specific financial obligation, like years of college or debt, term life insurance may be a good option for you. term life insurance is often the most affordable type of life insurance.
permanent life insurance
Permanent life insurance can provide coverage for life. In addition to the death benefit, permanent life insurance includes a cash value component. If the cash value increases, you can access the money by taking out a loan or withdrawing funds. if you decide to cancel the policy, you can take the cash value of the policy (less any surrender charges).
Consider permanent life insurance if you want to build cash value to supplement retirement savings or provide a death benefit for someone who will depend on you financially for an extended period. permanent life insurance is more expensive than term life insurance.
Types of permanent life insurance include whole life, universal life, variable life, and burial life.
related: best life insurance companies
Medical bills are one of the most common causes of financial hardship in the United States, according to the American Public Health Association. Even if he’s young and healthy, a hospital stay could cost him around $30,000 for three days, according to healthcare.gov. if he doesn’t have insurance, that could ruin his finances.
You can usually get a health insurance plan through your employer. If your employer doesn’t offer health insurance or you’re unemployed, you can search for health insurance plans through the federal health insurance marketplace. Health insurance plans in the federal marketplace may provide subsidies if you meet income and eligibility requirements.
Or you can buy health insurance by contacting health insurance companies directly or through a health insurance agent or broker.
If monthly premiums seem unaffordable, look into the costs of a high-deductible health plan. With this type of coverage, you must pay a higher deductible before coverage kicks in, but it will lower your monthly health insurance cost.
plus, you can combine a high-deductible insurance plan with a health savings account so you can stash tax-free dollars to pay for future medical costs.
Generally, you can buy health insurance only during open enrollment periods specified by the health insurance companies that sell it. Open enrollment for Marketplace plans typically begins November 1. 1 to Dec 15, although some states extend the deadline.
Exceptions to the open enrollment period are allowed under certain circumstances if you have had a recent life-changing event, such as getting married or having a baby.
You might think you need disability insurance only if you have a job that involves hazardous activities. but most disabilities are not work-related. Arthritis, cancer, diabetes and back pain are among the leading causes of disability, according to the Council for Disability Awareness. That’s why it’s wise to consider disability insurance as part of your financial plan.
If you get sick or disabled and can’t work, disability insurance supplements a portion of your income. it typically replaces 40% to 70% of your base income, and typically has a waiting period before coverage kicks in and a limit on how much you pay each month.
In addition to qualifying for Social Security disability benefits, there are two main ways to get disability insurance:
- group disability insurance through work
- individual disability policies that you buy on your own
long-term care insurance
Adults turning 65 have a 70% chance of needing long-term care at some point, according to the Department of Health & human services. Whether it’s in-home assistance to help with daily tasks or an extended stay in a nursing home, most seniors are likely to need assistance at some point in their lives. and long-term care is not cheap. It costs an average of $9,000 a month to stay in a private room in a nursing home, according to Genworth, which sells life and long-term care insurance.
Long-term care (ltc) insurance can help pay for expenses like home care, adult day care, or nursing home stays. The best time to buy long-term care insurance is when you are in your 50s or 60s. Buying coverage during this age range is often the most profitable time to buy. As you get older, the cost of LTC insurance will increase.
Be sure to thoroughly research this product before purchasing. In recent years, policyholders have been shocked by large premium increases that have made insurance unaffordable for many after they’ve purchased it. The Congressional Research Service has an overview of long-term care insurance.
If you’re shopping for life insurance, you may be able to add long-term care coverage to your policy as a life insurance rider or purchase a policy that combines life insurance and LTC coverage.