8 Types of insurance policies and coverage you need in 2024

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by

Vishal Saxena
in

Insurance can be a cost-effective way to protect yourself financially from expensive issues like a house fire, car accident, or serious health condition. Understanding the different types of insurance and coverage options available can help you determine what is best for your needs and budget.

Depending on your personal circumstances, you may want to consider:

  1. Car insurance
  2. Homeowners insurance
  3. Renters insurance
  4. Umbrella insurance
  5. Life insurance
  6. Health insurance
  7. Disability insurance
  8. Long-term care insurance

Car Insurance

Almost all states require car insurance, making it illegal to drive without coverage. Your state mandates which types of coverage and the minimum amount you have to buy. But it’s wise to buy more than the required minimum to avoid being underinsured in a major accident, especially if you’re at fault.

Here are the types of car insurance you can buy to pay for injuries and property damage after an accident:

  • Liability Coverage: Pays others for their injuries and property damage if you cause an accident. It also pays for your legal defense and any settlements or judgments if you’re sued because of the accident, up to your policy limit. Bodily injury claims nationally average around $20,000 per claim. If you don’t have enough liability coverage, you could face a court judgment and possibly wage garnishment to pay what your insurance doesn’t cover.
  • Comprehensive and Collision Coverage: Comprehensive insurance covers theft and damage to your vehicle from fire, hail, floods, falling objects (like tree branches), and animal collisions (like hitting a deer). Collision insurance pays for damage to your vehicle from hitting an object like a pole or building, even if you were at fault. These optional coverages may be beneficial, especially if you have a newer car or if you can’t afford to repair or replace it. If you have a loan or lease, your lender may require you to have collision and comprehensive car insurance.
  • Uninsured/Underinsured Motorist Coverage: If a driver hits your car and doesn’t have insurance, or is underinsured, this coverage pays for your medical expenses as well as those of your passengers. It can also cover your lost wages and pain and suffering.
  • Personal Injury Protection (PIP): Helps pay medical expenses for you and your passengers, regardless of who was at fault for an accident. It can also reimburse you for lost wages and for services you can no longer perform because of an injury, such as child care. PIP is required in some states, optional in some, and unavailable in others.
  • Medical Payment (MedPay) Coverage: Covers your medical expenses, and those of your passengers, if you’re hurt in an accident, regardless of who was at fault. MedPay is usually sold in small amounts between $1,000 and $5,000.

Homeowners Insurance

If you own a house, you may only be required to carry homeowners insurance if your lender requires it. But as one of your largest assets, having home insurance can be an affordable way to protect yourself financially. If your house gets significantly damaged or destroyed by a covered problem, like in a house fire, you’ll want enough coverage to be able to repair or rebuild your house and replace your personal belongings.

A standard homeowners insurance policy includes six coverage types:

  • Dwelling Coverage: Pays to repair or rebuild your home if it is damaged or destroyed by a covered peril.
  • Other Structures Coverage: Pays for damage to detached structures on your property, like garages, sheds, and fences.
  • Personal Property Coverage: Covers your belongings inside your home, such as furniture, electronics, and clothing.
  • Loss of Use Coverage: Pays for additional living expenses if you can’t live in your home while it’s being repaired after a covered loss.
  • Liability Coverage: Protects you against lawsuits for bodily injury or property damage that you or your family members cause to others.
  • Medical Payments Coverage: Covers medical expenses for guests if they are injured on your property.

Renters Insurance

Renters insurance offers great value, as it is usually affordable and can provide tens of thousands of dollars in coverage for your belongings and hundreds of thousands of dollars in liability protection. A renters insurance policy includes:

  • Personal Property Coverage: Covers your personal belongings in case of a covered loss, like having your rental broken into, items stolen, and your furniture vandalized.
  • Liability Coverage: Pays others for injuries and property damage, and your legal costs if you’re held liable for injuring someone else or causing property damage to others.
  • Additional Living Expenses Coverage: Covers extra costs you incur if your rental cannot be lived in while being repaired or rebuilt after a covered loss.
  • Medical Payments Coverage: Pays for a guest’s injuries if they’re injured in your rental house, regardless of who was at fault.

Umbrella Insurance

Umbrella insurance can provide coverage for injuries, property damage, certain lawsuits, slander, libel, and personal liability situations that exceed underlying liability limits on your auto and home policies. People with assets above the maximum liability coverage on their auto, home, or renters insurance policies are ideal candidates for umbrella insurance.

The cost of umbrella insurance depends on several factors, including how many cars and homes you own, the ages and driving records of insured drivers, and any recreational vehicles you have, like a boat or RV. Here is the average cost of personal umbrella insurance for a household with one house, two cars, and two drivers:

  • $383 annually for $1 million in coverage.
  • $474 annually for $2 million in coverage.
  • $608 annually for $5 million in coverage.
  • $999 annually for $10 million in coverage.

Life Insurance

Buying life insurance can help prevent financial hardship for your loved ones when you die. In its 2022 Insurance Barometer Study, LIMRA found that 44% of American households would face financial hardship within six months of the primary wage earner’s death. Twenty-five percent would struggle in the first month.

Finding the best life insurance depends on your coverage needs, health, and budget. There are two main types of life insurance: term life insurance and permanent life insurance.

  • Term Life Insurance: Allows you to lock in your rates for a set period, usually 10 to 30 years. Your coverage expires at the end of the level term period unless you renew the policy or convert to a permanent life policy, but after the level term period, your coverage costs could be much higher. Temporary financial needs, like income replacement during your working years, paying off a mortgage, and funding your child’s education, can be a good fit for term life insurance. This policy is typically more affordable than buying permanent life insurance.
  • Permanent Life Insurance: Offers lifetime coverage and the opportunity to build cash value. You can use the cash value while still alive by taking out a loan or withdrawing the funds. If you decide to cancel the policy, you’ll receive the cash value balance minus surrender charges. Universal life insurance, whole life insurance, variable life insurance, and final expense insurance are all types of permanent life insurance. Cash-value life insurance can help cover burial and final expenses, leave an inheritance, or transfer wealth to future generations.

Health Insurance

Health insurance helps people pay for health care costs, like doctor visits, surgeries, medications, therapies, and hospital stays. Census Bureau data shows only 8.3% of Americans, or 27.2 million, didn’t have health insurance in 2021. With the average three-day hospital stay costing around $30,000, many Americans cannot afford to go without coverage.

Many Americans can get health insurance through their employer or purchase private health insurance through the federal health insurance marketplace. The average cost of health insurance varies significantly by age, plan type, metal tier, and insurance company. For a 30-year-old, the average monthly price for an Affordable Care Act (ACA) plan is:

  • $928 for a Bronze plan.
  • $1,217 for a Silver plan.
  • $1,336 for a Gold plan.

Those who qualify for premium tax credits or subsidies may be eligible for lower rates, depending on their total household income. Purchasing a high deductible health plan can make premiums more affordable, with the added tax-free savings of a health savings account. Health insurance is usually only available during open enrollment periods, which varies by insurance company. For marketplace plans, open enrollment is from November 1 to January 15 unless you have a qualifying life event, like having a baby or getting married.

Disability Insurance

Disability is an often overlooked type of insurance. Long-term disability insurance is especially important, as almost 1 in 5 Americans will have a disability lasting at least a year before they reach 65. Although nearly 25% of 20-year-olds today will become disabled before age 67, 65% of workers in the private sector don’t have long-term disability insurance coverage, according to the Social Security Administration (SSA).

While work-related injuries and illnesses occur, they are usually not the most common reasons people become disabled. The Council for Disability Awareness lists the top five disability causes as:

  • Musculoskeletal: Arthritis, chronic joint pain, and other disorders of the muscles, joints, and back.
  • Cancer: The most common in young adults are lymphoma, leukemia, testicular, melanoma, and breast cancer.
  • Injuries and Poisoning.
  • Heart Disease.
  • Mental Disorders.

Disability insurance can provide between 40% and 70% of income replacement once you pass the waiting period. Group disability insurance or individual coverage outside of work may offer more coverage than Social Security benefits, which average $1,483 a month for disabled workers. And SSA disability insurance is notoriously difficult to qualify for. Without disability insurance as part of your financial planning strategy, if you get a long-term disability, you would most likely exhaust savings,

retirement accounts, and even your home equity.

Long-Term Care Insurance

If you’re unable to perform daily activities independently, long-term care insurance can pay for help, such as someone assisting you with dressing, bathing, and eating. Whether you’re at home, in an assisted living facility, or in a nursing home, long-term care insurance can provide financial protection. Without it, you would have to rely on personal savings, assets, and family income to pay for your care.

According to the U.S. Department of Health and Human Services, almost 70% of people who turn 65 will need long-term care at some point, with women needing care for an average of 3.7 years and men for 2.2 years. Medicare does not cover long-term care, only short-term and limited care if you have a qualifying condition.

Since long-term care insurance premiums increase significantly with age, your health is important when applying for coverage. About 50% of people age 75 and older are denied coverage, compared to 21% of applicants ages 50 to 59.

Conclusion

Understanding the different types of insurance and their benefits is crucial for protecting yourself and your assets. By evaluating your personal needs and circumstances, you can choose the right insurance coverage to ensure financial stability and peace of mind.