What Type of Insurance Should I Get?
There are so many types of insurance for you to buy that it can be difficult to know which plans fit your particular needs. If you are under-insured, you are taking on unnecessary risk. If you are over-insured, you are wasting money that could be spent elsewhere. It is important to know your risks and cover them, but not everyone needs every type of insurance.
Common Types of Insurance
Consider health insurance. Different people have different medical needs, so not everyone needs the same amount of coverage. For example, healthy younger people will need less coverage than older people on average. It is also important to research plans well and remember that plans with lower premiums usually have higher copays and deductibles.
Disability insurance is a type of insurance that can provide income if a person gets injured and is unable to work and earn money. Disability insurance is an important investment for people who work dangerous jobs, but not for others. For example, it would make more sense for a firefighter to purchase disability insurance than for a computer programmer.
If you own a home, you should probably have homeowners insurance to protect your investment from unforeseen damages. You can also purchase additional coverage such as flood insurance. It would be wise to purchase flood insurance if you live in a flood zone, but not if you live somewhere with little rain.
Tuition insurance can reimburse you for college tuition, room and board costs, and other fees in the event that you have to withdraw due to serious injury or illness. Tuition insurance might be a good idea if you have chronic health issues or attend a university with high tuition rates, but it is probably unnecessary in other situations.
Liability insurance is a type of insurance that protects the policyholder in the event that she is at fault for someone else’s injury or for damage to another person’s property. It is important to have liability insurance in case you are at fault for causing injury to others or damage to their property. With liability insurance, the insurance company makes payments to a third party, not the policyholder, to cover their expenses for being at fault.
Bodily injury liability coverage helps pay for the costs faced by people injured in an accident. This could include hospital bills, rehabilitation fees, lost earnings, and other expenses.
Property damage liability coverage can help you pay to repair or replace other people’s property that you have damaged, but not for damages to your own property. For example, it may cover the expenses involved in repairing vehicles, fences, lamp posts, and other items.
If you are involved in a car accident and damage someone else’s car, liability insurance can help pay to fix their car. If someone comes to your house and your dog jumps on them and injures them, liability insurance can help cover their medical bills. If you own a home, car, or business, liability insurance is a good investment to reduce your risk.
Self-insurance is a risk management technique. Essentially, an individual or company will set aside a pool of money to be used in case of an unexpected event. People self-insure all the time. Emergency funds are an example of self-insurance. However, even though you can technically self-insure for any type of loss, in practice, most people will choose to purchase insurance against potentially huge losses, like a car accident or health issues.
Self-insuring against cheaper losses could be advantageous because you won’t be paying insurance premiums. Essentially, you can save money and self-insure by setting aside the money you would have paid out as premiums. It isn’t recommendable that you self-insure for potentially devastating losses, such as healthcare. Instead, you should consider self-insuring for unlikely, cheap losses, such as theft or a fender bender.
For example, if you are afraid that one day your house will be robbed, instead of purchasing insurance, you can set aside a portion of your paycheck every month into a pool only to be used in case of a robbery. This way, instead of paying premiums, you are saving money!
A warranty is a guarantee that a sold product or service has the quality the buyer can reasonably expect from the seller. It is a breach of warranty when the product or service isn’t as good as it should be, and this means that the buyer will get some compensation. Warranties usually last for a determined period of time, usually a few months or years. This is why some vendors offer extended warranties. A buyer that wants her product to be protected for a longer period of time will buy an extended warranty. An extended warranty is essentially an insurance policy.
Why would a company offer an extended warranty if that means they might have to repair their product years after you bought it? Simply put, companies which offer extended warranties have already calculated the probability that the product will need repairs and have used this number to set a price on the extended warranty. This price will be high enough to make the company even more money if people purchase extended warranties, even if some products do need repair! Overall, it is usually not worth it to purchase an extended warranty (unless for some reason you know a particular product is more likely to malfunction).
Extended warranties aren’t cheap either. For a fridge which costs $2,000, you might spend an extra $500 on an extended warranty. This may cover all repairs for the next three years, which could be tempting. However, a survey by Consumer Reports found that only 8% of devices were repaired within the first three years.
Health insurance is a type of insurance that covers medical and surgical costs for the policyholder. Having health insurance is vital because it reduces the likelihood of incurring huge medical debt in the case of an emergency. Injuries and illnesses can be very expensive. For example, a broken leg can cost up to $7,500! Health coverage can help protect you from high and unexpected costs.
Everyone used to be required by law to have health insurance until January 2019. If you did not have the minimum amount of health coverage, you would be subject to a fee. Now, that provision is no longer in place. There are two main types of health coverages. Basic Plans usually have deductibles, lower policy limits, and cover hospital and surgical expenses. Major Medical Plans have higher policy limits and cover more types of expenses, such as maternity care and laboratory services, in addition to hospital and surgical expenses. However, they tend to cost more than Basic Plans.
People can stay on their parents’ health insurance until they turn 26. Once you’re out on your own, find out whether or not your employer offers health insurance. Most universities also offer it.
Most Americans have private group health insurance through their employers. Group health insurance plans are purchased by companies and then offered to employees, and they are usually cheaper than individual plans.
The health insurance marketplace is an exchange where individuals or families without employer-sponsored coverage can compare health insurance plans. Here, people can apply for health insurance during the open enrollment period in November and December. There is also a Special Enrollment Period for certain life events, such as getting married.
Short-term disability insurance policies can cover part of a worker’s salary if they are unable to work for a short amount of time, usually three to six months. Each policy may have a different definition of what qualifies as "disabled," so it is important to understand these terms before signing up.
Long-term disability insurance can cover some of a worker’s salary if they are unable to work for a longer amount of time, usually more than six months. The price of the disability insurance policy will depend on how long a person is expecting to receive this benefit and how strict the definition of disability is under the policy.
Long-term care insurance can cover the costs of assisted living, nursing home care, or home health care in the event that you are unable to care for yourself later in life. Regular health insurance doesn’t cover long-term care, so long-term care insurance may protect your savings later in life.
A lot of young adults see insurance as something that is either too complicated or only old people need. However, young people face risks too. Nobody is invincible, and everyone needs at least some types of insurance to make sure they are protected against the hiccups in life.
You may have never thought about life insurance before, but if you have dependents (people who depend on you financially), the thought of what might happen if you’re not there to provide for them is no doubt scary. If you have kids in the future, you might want to look into purchasing life insurance.
Even if you just eat kale and supplements and exercise daily, you still need health insurance. Yes, even young people can get sick. Your health should be one of your top priorities, and if you ever have to face a medical concern, having the financial part dealt with will take a huge weight off your shoulders.
Unexpected losses can occur to your car or home as well. You never know if you’ll be involved in a fender bender, or if your apartment will catch fire. Last time we checked, a lot of young adults had cars and lived under a roof, and that probably hasn’t changed, so add car and renters or homeowners insurance to the list.
Finally, if you have a pet, you’re probably tired of paying for pet-related expenses. But what’s worse is what could happen if your pet does something dumb like eat all your multivitamins. That trip to the vet won’t be cheap, but it could be if you had pet insurance.
All in all, everybody needs some kind of insurance. The key is to analyze potential risks in your life and figure out ways to minimize those risks. That could be by self-insuring, but for potentially huge risks such as healthcare, make sure you are properly insured so that what could be just a small step backwards doesn’t turn into a leap.