Having the right insurance coverage can save you from financial disaster — but insurance policies can also be expensive, so you don’t want to buy policies you don’t really need. Navigating the process of obtaining coverage is tricky, especially if you’re faced with a hard sell for coverage that isn’t actually necessary.
To obtain the right coverage without wasting your cash, it’s important to know what policies actually protect you from a calamity — and which ones won’t. Here are five types of policies you definitely should buy, along with two you can almost always skip.
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The five essential types of insurance that everyone should have include:
Health insurance: A single day in a hospital could cost you around $1,900 or more in many parts of the United States. Not having health insurance is a surefire way to find yourself facing medical bankruptcy if you develop a serious condition. Plus, under Obamacare, you’ll face a tax penalty for not buying a policy.
Life insurance: If you have a spouse or children, buying life insurance is a no-brainer. Your loved ones count on your income, or on the services you provide. But even if you’re single, buying life insurance is still important. You may have parents or other dependents who need you. Even if you don’t have anyone relying on you now, you could in the future. Buying a policy when you’re young and healthy is cheaper. It also protects you and your loved ones in case you later develop a condition that makes you uninsurable.
Auto insurance: You must have at least some auto insurance to own and operate a car anywhere in the United States. Buying more than the minimum required is usually advisable, as you’ll need your insurer to pay to replace your car in the event of a crash and will also need protection from liability in case you cause injury to others.
Renters or homeowner’s insurance: Do you have the cash to replace all of your possessions and rebuild your house if something happens to you? If not, you’ll need homeowner’s insurance. Renters need insurance because their personal property is not covered by their landlord’s policy. Both homeowners and renters also benefit from liability protection that homeowner’s or renter’s policies provide, because if someone gets hurt on your property you could be responsible for personally paying for all of their losses if you’re not covered.
Disability insurance: More than one in four people who are 20-years-old today will become disabled before their working years end. Workers’ compensation provides disability income only if disabilities are job-related, and Social Security Disability Insurance provides limited benefits only after a lengthy and difficult application period. More than half of all initial applications for Social Security Disability are denied, so there’s a good chance you’ll have to fight hard for coverage if you become disabled. A private policy pays for short-term disability, which Social Security doesn’t offer benefits for, and makes it easier to replace your income if you become temporarily or permanently unable to work due to illness or injury.
Policies you can usually skip
While having enough coverage is key to being financially and personally secure, you don’t need to waste cash on insurance policies that provide redundant or unnecessary coverage. Two policies you can usually skip include:
Car rental insurance: Car rental insurance is costly and is not typically needed because your own auto insurance and your credit card likely provide protection in case of damage to a rental car. Expect a hard sell from the rental car agents who will warn you of dire financial consequences if you don’t buy coverage. You may also need to make a larger deposit for your rental vehicle. But don’t fall for the sales pitch — talk to your auto insurer and your creditor before you rent a car to confirm you have sufficient coverage.
Mortgage protection insurance: Mortgage insurance is a policy that promises to pay off your mortgage if you pass away before it’s paid in full. These types of policies are often more costly and less comprehensive than a term life insurance policy would be. Instead of buying mortgage insurance, opt for an affordable term life policy that will provide flexibility in how the death benefit is used.