There’s a lot of insurance out there, from the extended service package on your newest iGadget to whole life policies with complex value schemes. Whether or not any given type of insurance is right for you depends on a variety of factors. However, financial experts consistently identify five kinds of insurance that most established families will need.
Losing a family member is hard enough without adding financial hardship to the situation. Term life insurance pays out to help make up for the lost income and associated expenses. Unlike whole life insurance, which covers a person for the length of her life, term life policies can be bought for the length of your working life – making it enough less expensive that even middle-earning families can replace five or ten years’ worth of income.
Only skip this if you have no dependents or other people relying on your income.
If you have a mortgage, your contract probably requires you to carry a homeowners policy. Even if you own your home free and clear, it’s a good idea to protect the largest investment of your life. If you don’t yet own a home, renters insurance is an inexpensive option for protecting your possessions against accidents, vandalism and theft.
Only skip this if you don’t own a home, and have sufficient cash reserves to replace your belongings.
In the US, if you have a car you’re supposed to carry this in order to protect other drivers from damage you might do – but it’s often worthwhile to carry enough comprehensive coverage to replace your car if you accidentally damage it yourself. In most families, the car is the second largest investment they make.
You’re not legally allowed to skip this one at all. Skip the comprehensive coverage only if you can afford to buy a new car out of pocket.
Consider this life insurance’s little brother. An injury or illness can take a person out of the earning pool for months or even years – a situation that’s little different from death in terms of the family finances. Long-term disability insurance protects for those longer periods of recovery, while short-term disability will help out during problems that last only a few weeks.
Don’t skip long-term disability if you have any dependents, or if somebody could become liable for your medical bills. Skip short-term if you can weather one to two months without a paycheck.
Homeowner’s insurance in areas where certain kinds of disasters are common expressly do not pay out for damage due to that sort of disaster. For example, if you live on a flood plain, your homeowners insurance won’t pay for flood damage. If you live in such an area, you might be able to find (often government-run) insurance coverage specifically for those natural catastrophes.
Never skip on disaster insurance if you live in an area with frequent natural disasters.