What kind of insurance do I need?

We will cover the basic types of insurance that you may need.

Health Insurance – One of the most important types of insurance is health insurance. The cost of healthcare is continually increasing, and without insurance this cost can be unbearable. If others are dependent upon you – spouse, children, or parents – then providing health insurance for your family is absolutely necessary. If you are only providing insurance for yourself, then it should be purchased if it can be afforded. It is important to remember that health insurance does not just cover you when you get sick. Even if you feel that you never get sick (and you may be right), you are still susceptible to falling and breaking your arm. Insurance is not a way to get checkups with the doctor. Health insurance is a way to avoid debt from an unforeseen circumstance.

Scenario – John works forty hours a week for a construction company. He passed up an opportunity to get insurance through his work and failed to get health insurance for his family. His daughter is 9 years old. John always pays the doctor bills himself when she gets sick. However, she recently came down with a bad case of pneumonia. John knows that pneumonia can be life threatening, so he takes it very seriously. His daughter is so bad that he takes her to the emergency room. She stays in the hospital for two days. The prescription drugs needed to treat his daughter are hundreds of dollars apiece, and she must be treated for several months to ensure there is no relapse. The stay in the hospital costs thousands. John doesn’t know where he will get the money, so he decides to rob a bank.

Ok, just kidding, John doesn’t rob a bank. But hey, he’s got to get the money somewhere, right? Insurance is a way to prepare for the unexpected or unforeseen things that happen in life. When it comes to the health of a family, insurance is absolutely necessary. On the priority list, it should fall behind only food and shelter, and should be first on the priority list of insurances.

Life Insurance – If you live by yourself and have no family or people dependent on you, you probably don’t need life insurance. But for most people, life insurance is absolutely necessary. If you die, would your family be able to survive without you? Would they be well taken care of? Would they be in debt over funeral costs? Life insurance is relatively inexpensive compared to most insurance, and the payout (which depends on how much your premium is) is usually pretty high. This sum, which is awarded to your family or whomever you name as your beneficiaries, can be vital in allowing them to recover and become financially independent. Remember that life insurance isn’t for the people who die, it’s for the people who live.

Homeowner’s/Property Insurance – The general rule is to insure what you can’t afford to lose. Valuable property that cannot be replaced without financial hardship but that would need to be replaced should absolutely be insured. Your house, if you own one, should always be insured. Homeowner’s insurance will usually cover all possessions within your house, so in case of a fire, everything you own inside your house would be insured. This is a very good idea if your house is filled with valuable possessions. Renter’s insurance is the equivalent of this for people who rent. Sadly, many people don’t choose to carry insurance on their house, and the results can be crippling, financially and emotionally. All it takes is one fire and your life as you know it is gone.

Auto Insurance – Most people figure that if they’re going to skimp on insurance somewhere, auto insurance is the most logical place to do so. The fact is, everyone who drives is required by law to carry liability insurance, meaning they are insured if they hit someone else and cause damage. However, when you hit someone else, the insurance company will not pay to fix your own car if you only carry liability. You must carry comprehensive coverage to ensure that you yourself are covered. Some people figure that their car is not worth much anyway, so what’s the point? Well, it is important to remember that comprehensive auto insurance usually covers the physical injury as well as that to your car. In fact, you must carry physical injury insurance for anyone that your harm by your own fault.

Scenario – Luis has a 1990 Honda Accord. It’s not in very good shape, so Luis figures he will only get liability insurance. After all, liability is 83 dollars a month and comprehensive is 114 dollars a month. Luis saves 31 dollars a month by not insuring his own car. He also pays the bare minimum for liability coverage. There are several negative things that can happen from this scenario.

Option 1 – Luis spaces out and runs a red light, causing a nasty collision with another car. Luckily, no one is injured, but both cars are totaled. Luis’s insurance covers the repairs to the other car, but Luis suddenly finds that his own car is not insured, and at last grasps the gravity of this risk. Luis has no car and no means to purchase another. His transportation to work is gone. He barely has enough money saved up to pay the rent, let alone purchase another vehicle.

This situation seems pretty bad, but it could have been a lot worse.

Option 2 – Luis spaces out and runs a red light, causing a nasty collision with another car. The driver of the other car is severely injured, and seems to be unconscious. It turns out the driver will need years of surgery to repair the damage that has been done. Luis’s bare minimum policy covers the driver of the vehicle up to 50,000 dollars. However, within a month, the cost of the driver’s surgeries exceed this amount, and continue to pile up. Luis is in debt a hundred thousand dollars within the year, effectively ending any plans to purchase anything but food and shelter for the rest of his life.

This option may seem extreme, but it is not. When you pick the bare minimum on an insurance policy, you are still taking a risk, even though insured. Accidents happen every minute of every day, and many of these people are injured. With the rising costs of medical care, it is vital to make sure that you are covered through a decent amount of physical liability. Many insurance companies seem to offer you a great rate, but it is important to understand just what you are being insured on. Sometimes, you can purchase an “umbrella” policy, which will cover all of these things. This, too, seems like a great deal, but usually the coverage is very limited.