Insurance: What You Need, What You Might Need, and What You Don't Need
by Lyle Daly | Updated July 17, 2021 - First published on May 20, 2019
Insurance is that rare service you pay for while hoping you'll never have to use it. For a relatively small fee, you're protected against potential worst-case scenarios that could cost you a lot more.
The problem is that there are so many different types of insurance policies available it can be hard to know which are necessary and which are a waste of money. But after going through this list, you'll know exactly what types of insurance you really need.
What you need
There are certain types of insurance that every adult should have. If you don't have any of the insurance below, then you should start shopping for a policy ASAP.
Health -- Your health is one area where you definitely don't want to cut costs. Without health insurance, the cost of seeing a doctor can be prohibitively expensive. That's especially true for emergency care, as Healthcare.gov reports that the average three-day hospital stay is about $30,000.
Even if you're young and in perfect health, going without health insurance is a bad idea. There's the possibility of injuries, illnesses, and other medical issues at any age.
Renters/homeowners -- Think about all the belongings you have in your home and how much it would cost to replace them. With a computer, TV, clothes, furniture, and appliances, you could easily be looking at spending $10,000 or more.
Now imagine that you're the victim of a burglary, fire, or some other misfortune. If that happens, you'll be relieved to have renters or homeowners insurance.
Auto liability (if you have a car) -- In most states, drivers are legally required to have auto insurance. Whether your state requires it or not, you should at least have liability coverage in case you cause an accident. Otherwise, you could be on the hook for any resulting property and bodily damage.
Disability -- You may think you'll never end up disabled, but it's more common than you might think. According to the Social Security Administration, more than 1 in 4 20 year olds will become disabled before they reach retirement. Getting disability payments through worker's compensation or Social Security can be a huge challenge, which is why everyone should have long-term disability insurance.
What you may need
Certain types of insurance can be a smart choice, but only if your specific circumstances call for them.
Life -- If you have any dependents or a spouse, then you should have life insurance. After all, you want those you care about to be OK financially in the event of your passing.
If you're single and have no dependents, you can get by without life insurance, but it's still something you should strongly consider. Your circumstances could change, and life insurance policies tend to get more expensive as you get older.
Comprehensive auto -- Liability insurance only covers damage you cause to other parties on the road. To protect your car, you would need comprehensive coverage. However, whether this is worthwhile depends on the value of your vehicle. If you're driving an older vehicle that isn't worth much, then you may be better off skipping comprehensive coverage.
There's no hard rule on when you should skip comprehensive coverage, but generally, you should think about it if your car's worth less than $3,000 to $4,000. At that point, premiums could cost 25% or more of the car's value per year. You may be better off stashing that money in a good bank account so that you're ready to buy a new car when the time comes.
Travel insurance -- When you have an expensive or international trip coming up, travel insurance can be a good way to protect yourself from any travel issues. But for less costly domestic travel, you may want to save your money.
Keep in mind also that there are a lot of travel rewards credit cards that have complimentary travel insurance. Make sure you check to see if your card offers that, and if not, you could always consider getting a card that does.
What you can skip
Last, and in this case least, are the types of insurance that just end up being a money pit. Here are the most common and some superior alternatives.
Car rental coverage -- This rental car add-on is unnecessary and expensive. Your regular auto insurance policy may already cover accidents in a rental car. Complimentary rental car insurance is also a staple feature of the best credit cards, and you just need to pay using the card to get the coverage.
Credit card balance protection -- With credit card balance protection insurance, you pay a portion of your average daily balance on the credit card (usually about 1%), and then the insurance covers your minimum payments if you can't due to unemployment or a medical issue.
This is, to put it simply, a terrible deal. You'll be paying a costly premium and if you ever need the insurance, it will only cover minimum payments. Once you get back on your feet, you could still have a sizable balance to pay off. An emergency fund is a much better way to go.
Protecting yourself without wasting money
Picking the right types of insurance for yourself are crucial so that you're covered should anything happen, but also so that you're not blowing money on unnecessary coverages. And of course, you should always shop around for insurance before you sign up for a new policy, because you can also save quite a bit by comparing all your options.
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