Insurance…one of those things you hate paying for until you ACTUALLY need it!
Remember that finance class you took in high school that taught you about the important things in life,? You know getting life insurance, filing taxes, saving for retirement, and ALL the types of insurance you should carry…yeah me neither!
Unfortunately, that is something that we normally have to learn on our own 🙁
Adulting 101 here people- you need insurance, whether you like it or not!Adulting 101 here people- you need insurance, whether you like it or not! Click To Tweet
Insurance is one of those things that you think you don’t need until you actually need it. Like that time you accidentally rear-ended someone cuz you turned around for a split second to yell at the kids in the back seat and the person you hit wound up needing medical attention-yeah that annoying auto insurance you pay every month covered getting your car fixed, and those medical bills.
So as a responsible adult, what kinds of insurance should you have?
Well, let’s review the 6 main types of insurance you should have. And no, cell phone insurance is not one of them…
1. Health Insurance
EVERYONE should have health insurance. Let me say that again…EVERYONE should have health insurance. Because at some point you will need to go to the doctor for one reason or another.
Did you know that medical debt is one of the leading causes of bankruptcy in the US? Ouch…Did you know that medical debt is one of the leading causes of bankruptcy in the US? Click To Tweet
Many employers offer health insurance, although if you are part-time this may not be an option. Also, not all employers are required to offer health insurance coverage to their employees.
What about if you’re self-employed or unemployed?
If you are unemployed or underemployed and can’t afford to purchase your own insurance, or your employer doesn’t offer it, look into what your individual state offers. I know in Wisconsin we have BadgerCare, which the eligibility is based on your income level in accordance with the federal poverty level.
If you are still under the age of 26, you can even stay on your parent’s health insurance plan, as long as their plan covers children.
With the mandatory Affordable Care Act, you actually will receive a fine if you do not carry health insurance coverage. Can’t find coverage through an employer or don’t qualify for state insurance assistance? Check out the Government Healthcare Marketplace or eHealthInsurance to compare plans and find one that fits your needs and your budget.
Things to consider when looking at health insurance plans:
What is the annual deductible?
Is the deductible paid per person, per family or per year?
Are there co-pays? If so, what are they?
What is your yearly maximum out of pocket?
What is the cap on the insurance?
If you currently have a doctor, are they “in network”?
After your deductible is met, what percentage do you have to pay for services?
What benefits are included?
Are preventative care and routine exams covered?
Are there restrictions for pre-existing conditions?
What happens if I need to see a doctor outside the network-while traveling?
How does the company handle claims?
Yeah, I know it’s a lot to think about, but they are all important questions to ask when looking for a health insurance policy.
2. Auto Insurance
As of the beginning of 2017, all but 2 states (New Hampshire and Virginia) require drivers to hold auto insurance. Don’t want to pay for auto insurance, well, plan on walking everywhere then.
States require drivers to hold auto insurance to protect against the huge financial costs of being in or causing an accident.
Even if you are a perfect driver, never speed, and have never been in an accident, bad luck still happens. You could hit a deer, a tornado could put your car in a tree, or some drunk idiot could run into it while your car is parked somewhere.
It’s a fact of life that bad shit happens to good people. So instead of gambling with your chances and suffering financial hardship should something happen that is out of your control, just suck it up and get auto insurance.
Things to consider when looking at auto insurance plans:
What kind of coverage do you need? Full coverage, liability?
Is property damage covered? If so, how much? (you know, in case you run into a house)
What is your risk assessment? (calculated by your age, sex, driving and criminal record, credit rating, and where you live).
What portion of medical bills are covered?
Who will my policy cover to drive my car?
What is the deductible?
Are there any discounts offered? Or perks for NOT getting into an accident?
What are your payment options-monthly, quarterly, yearly?
Is what you drive calculated into the insurance cost? (Think sports car vs. minivan)
Is there a 24-hour claims service?
Is everything handles online or is there a person you can actually meet with at a local office?
Does your state have minimum coverage requirements and does this plan meet them?
There is A LOT to think about when choosing auto insurance, but it’s one of those things you will be super thankful you have if your friend borrows your car and hits someone and sends them to the hospital. Just make sure that is covered first 😉
3. Homeowner’s Insurance
Do you own your house (or at least pay the mortgage to eventually own it)?
Your home is important to you. It holds your family, your memories, and all your stuff. You should protect it as much as you can from storms, fire, floods, and other natural (or unnatural) disasters. Most likely, your house is your most valuable asset.
Because of this, your homeowner’s insurance is incredibly important and should not be taken lightly.
Plus, the company you pay your mortgage to probably makes it mandatory to carry homeowner’s insurance. Which I know for us automatically gets calculated into our mortgage. If it doesn’t roll right in with your mortgage payment, make sure you budget accordingly.
Homeowner’s insurance is one of the broadest insurances that you will have. It can cover things like a stolen tv, replacing shingles on a roof after a big storm, a basement flood that your ruined comic book collection, or someone slipping on the ice in your driveway who now needs chiropractic care.
Yeah, there is a lot of things that could happen on your property, which is why homeowner’s insurance is so important. It covers the house AND the property it sits on.
Things to consider when looking at homeowner’s insurance plans:
What does the policy cover and what does it not cover?
What is the deductible?
What is the total cost to rebuild?
If you live in a flood plain do you have to have additional flood coverage?
Will your policy cover other living arrangements while the house is being rebuilt?
What about everything inside the home-does the policy cover all your stuff also?
How much stuff do you need to protect?
Does your house have a claims history?
Are there any discounts you can take advantage of?
How are claims handled? Is there a 24/7 customer service?
So what if you aren’t paying on a mortgage and currently renting, how do you protect yourself then?
3. (b) Renter’s Insurance
Even if you are not paying on a mortgage and are currently renting, it is still a good idea to have renter’s insurance. Even if you think your stuff isn’t worth much, the biggest mistake you can make with renter’s insurance is not having any.
Renter’s insurance will help to cover your stuff in an unfortunate event. You know like your upstairs neighbor’s tub overflowing and dumping water all over your entertainment center-bye bye new PS4!
Things to consider when looking at renter’s insurance plans:
Is all of your stuff covered?
What kind of unfortunate events are covered?
What happens if someone hurts themselves in my apartment?
Are my roommates covered under my policy as well?
What happens if my stuff is damaged or stolen outside of my apartment?
What is the deductible?
There are some exceptions to renter’s insurance though. If you sublet your apartment or rent it out for Airbnb you are going to want to make sure that you have your i’s dotted and t’s crossed when it comes it comes to knowing what is covered and what isn’t.
4. Life Insurance
Although we may not like to think about it, life insurance is another one of those things that everyone needs-especially if you are married and or have a family.
In short, life insurance helps to protect those you care about – your spouse, kids, etc – should you pass away. It helps to protect your loved ones against having to take on all your debt (with the exception of student loans-you take those to the grave), going from 2 incomes to 1, or having to move into a cardboard box cuz they can’t afford anything now.
I know it’s a grim topic to think about, but what would happen if you died tomorrow? Are you the breadwinner or caretaker? Would your family have to move into some crappy income based apartment? Would your kids have to move schools? Would your spouse now have to hire someone to take care of your kids while they work to support the family? Would you kids have to stop all of their activities?
If you are unprepared, a sudden death in the family of a caretaker or main income earner can be extremely detrimental, beyond dealing with the actual loss of a family member.
But, I’m going to assume that if you died tomorrow, you would want your family’s life to (for the most part) carry on like normal. I know I would. I would hate to have my kids quit all their activities and the things they love because I was gone. Or for my husband to continue to work full-time and not be there for my kids when they would need him the most.
There are 2 main types of life insurance-Whole and Term.
Whole life insurance is a good option if you are looking for your money to work for you in more than one way.
Whole life insurance policies act like an investment account that you can use in the case of large and unexpected expenses. It does not expire when you reach a certain age but also has a small rate of return. This is the more expensive option of the two.
Term life insurance tends to cost less-which means you can easily take out higher amounts of insurance, but also expires at a certain age. If you are planning to have all your debt paid off, own your home, and not have any children to take care of when you die, then term life is a great option. Also, a more affordable one if you are concerned about fitting it into your budget.
Things to consider when looking at life insurance plans:
Who are the beneficiaries?
Is my insurance set up to take care of my kids if both my spouse and I pass away?
What is the death benefit-will it cover my debts and let my family live comfortably?
Is there a cash benefit to the policy?
How is your need for insurance determined?
Does the policy provide living benefits?
What is actually guaranteed?
What happens if your health changes?
What is covered if I become disabled?
Will the death benefit adjust for inflation?
What happens if I can’t pay my premium?
What happens as I age? Does the policy change?
Although it’s not something we like to think about, making sure your family is taken care of if you pass away is extremely important. Don’t overlook it! Also, check to see if and what your employer offers for life insurance.
5. Disability Insurance
Now, most employers offer some type of disability insurance. Make sure you know the policy and what it covers and how much they will pay you if you become disabled. The standard is 60% coverage, which the employer normally covers. But it really depends on the employer.
What does that 60% coverage mean? If you become disabled with a long-term disability, your disability insurance would only cover 60% of your income.
That’s great, but just like with unemployment, that is probably not going to cut it long-term. Think about it, if you are the one working full time and making $100,000/year and get hurt and had to go on long-term disability, your income will be cut down to $60,000. That’s like going from 2 incomes to 1, ouch! Could you still afford everything you have with a 40% reduction in income?
Why not consider taking out some additional disability insurance for an extra 30% of your salary coverage? That would put you up to 90% of what you are currently making-that makes things a little easier, doesn’t it?
You should first check for coverage through your employer. Sometimes you can purchase additional long-term disability insurance through them at a lower cost. If that isn’t an option, check with an insurance agent for more options.
Think you don’t need disability insurance cuz you work an office job-think again…
Here are some scenarios:
Your pregnant and the doctor puts you on bed rest.
You have a surgery that isn’t work-related that requires recovery time.
You wind up in the hospital due to an illness.
Oh, I’m healthy you say, I’m never sick. Yeah well, I was never sick either, until June of 2014…
I was volunteering at the library and it started as a headache-a blinding headache that felt like an ice pick in my brain. A few days later my dad had to take me to the hospital, I don’t remember anything other than getting into his truck, being hauled into an MRI machine, and blips of doctors and nurses trying to talk to me here and there. Turns out I had viral meningitis.
At the time I was staying home with my kids, so thankfully I wasn’t missing work. But I was down and out for about a month with a PIC line in my arm consistently feeding me IV fluid and sleeping most of the day. Thankfully I had my family to help me out with the kids! Had I been working, I probably would have been S-O-L.
So, before you write off having disability (or health) insurance, think back to my story. I was completely healthy, other than that.
Side note on health insurance-had I not had any health insurance, my medical bills would have been over $16,000!Did you know that medical debt is the #1 cause of US bankruptcies? Click To Tweet
Things to consider when looking at disability insurance plans:
What percentage of your income will you receive if you become disabled?
What type of pay does the policy include? Just base, commissions?
What about my 401(k) and other retirement contributions?
Does the payout stay the same if my income increases or does it adjust?
What happens when the cost of living increases?
Is there a maximum, yearly payout?
Is the disability payout taxable?
Can I renew my policy at the same price every year?
What happens if I can’t pay my premiums?
Is there a waiting period after I become disabled?
Of course, becoming disabled is not something you want to think about. But, just like with life insurance, you want to make sure that you protect your family in the event that something happens to you.
6. Long-Term Care Insurance
I had a bunch of kids for one reason-to take care of me and my husband when we are old and can’t care for ourselves anymore. I’m joking…well kind of. 😉
But for those of you who don’t have a bunch of kids to care for you when you get old, long-term care insurance is something to look into. Long-term care insurance is a critical piece in your retirement planning. About 70% of people will need some type of care after the age of 65, for an average of 3 years-geez, that’s kind of depressing.
Living in a nursing home or assisted living facility can be very expensive. And don’t expect the government to help pay for it. Nothing is for sure when it comes to the government helping pay for stuff for you. If you purchase long-term care insurance when you’re young, it can be incredibly affordable.
Things to consider when looking at long-term care insurance plans:
Does the policy include protection against inflation?
What is the maximum payout for the policy?
Does it expire at a certain age?
How much will it pay out per day?
What is the qualification to start the coverage?
Do the premiums stay at a guaranteed level?
Does the policy cover all types of care (home health, skilled, custodial, etc)?
Will the policy cover dementia?
Getting old and not being able to care for yourself is not something you want to think about, but it is something you should prepare for. You know, in the case that your wonderful children decide to stick you in a home.
Self-insure. This option is not for everyone. If you have ALL of your debt paid off, including your house, to self-insure is a possible option.
With homeowner’s insurance for example, if you have paid your house off, you don’t technically need it. HOWEVER, if something were to happen-thunder hits your debt free home and blows it up-without any type of insurance, where would you be?
Looking for another house I bet, racking up debt through another mortgage.
If you self-insure your homeowner’s insurance, then you should have enough in the bank to cover the cost of rebuilding your house, paying to replace everything inside the house, and housing arrangements while your house is under construction.
Yeah, that adds up quick!
And that is on top of your emergency fund and any retirement savings.
What about life insurance?
Self-insuring is also an option here. Good for those who have little to no debt, own their home, and have a large amount of savings, beyond what you have saved for retirement.
When you really start adding things up, it can very quickly jump into the millions!
When self-insuring for life insurance, you have to consider things like what it actually cost for your family to live for an entire year, comfortably. How long would your family need to live off of your insurance money? This can be a hard number to really nail down, so be cautious with this option.
And what about long-term care and disability insurance?
Well, if you have a pretty large nest egg-again, beyond your emergency fund, retirement, and any additional savings, then this might cover your long-term care and disability needs. But again, trying to calculate this can be difficult.
How long do you plan on living after you retire? If you became disabled, what percentage of your income would you be comfortable living off of? There really is no magic calculator to determine this.
Insurance is not the funnest thing to discuss or plan for when it comes to budgeting, but it is absolutely necessary!
When it comes to insurance, you hope you are never going to need to use it but will be thankful when you have it. But the costs for these different policies can really start to add up.
Take a look at the posts below to get some ideas on how to save and make a little extra money so that you can work your insurance premiums into your budget.
Has there ever been a time when you thought you didn’t need an insurance but were thankful you had it?
Give me the goods!
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