When you hear the term “insurance,” you probably think of one single type of insurance — health insurance, car insurance, or homeowners insurance, for example. But the truth is, we all need a variety of insurance to protect us, not just one or two. Why? Because life doesn’t always happen the way we expect, and if we’re only protecting ourselves in one way, we leave ourselves open to a host of other risks — ones that could have major impacts on our health, our happiness, and our finances.
That’s why we’re going to be talking about the different types of insurance (briefly!) and how each type might help you protect yourself, your loved ones, and your finances. Of course, you might not need all types of insurance and everyone’s coverage needs are different. This is just to introduce the importance of different types of insurance and start you on your journey to find the coverage that’s right for you.
It’s fairly easy to understand why someone might want a life insurance policy. If you were to pass unexpectedly, you’d want your spouse or family members to be taken care of, and to leave money to take care of any debts or expenses. Life insurance is especially powerful for a spouse and/or children, as it protects their overall financial stability should something happen to you.
TYPES OF LIFE INSURANCE
Life insurance can get somewhat overwhelming when you start shopping for it. There are different types of life insurance, the most “popular” being term life, whole life, and universal life. However, there are also other options like permanent life, variable life, simplified issue life, and more.
Term life insurance allows you to buy coverage for a certain “term,” i.e. $1 million coverage for 30 years. That means, if you die within that term, your beneficiary will receive $1 million.
Whole life insurance allows you to buy coverage for your “whole life,” even into your 90s and beyond. You pay the same premium the entire time and it doesn’t lapse unless you stop paying your premiums.
Universal life insurance is a flexible insurance policy, which means you can change your coverage (death benefit) at any point. It also works somewhat like a savings account. You pay your premium each month and you build up a cash value, which you can withdraw after a certain point (depending on the plan).
In the event of disability, would you be able to provide for your family? Many people assume that federal disability aid would be accessible if they were unable to work, or that their salaried position will provide some security. But in some cases, this isn’t true. That’s why disability insurance might be something to consider, especially if you have no disability insurance protections through work.
There are two different types of disability — short-term and long-term — and there are different insurance policies designed to help people who fall into either category. In a short-term disability situation, i.e. you were in a severe car wreck and needed to recover before returning to work, a short-term disability insurance plan would help cover some or all of your work income during that time. A long-term disability plan, on the other hand, provides income for individuals who are no longer able to find gainful employment due to their disability.
COMMON MISCONCEPTIONS ABOUT DISABILITY INSURANCE
Many people assume that, if they become disabled and can no longer work, they’ll just file for Social Security. But the Social Security Administration has really strict regulations on who qualifies for their program and who doesn’t, which makes it hard for many people with short- and long-term disability to qualify.
On top of that, many people assume their work’s short-term disability policy has them covered, but many plans only cover 40-50% of your average salary or hours, not the full amount. Private disability insurance can help you cover the remainder to ensure you can keep your household finances afloat.
If you own a business, and depending on its size and scale, you’ll need different levels of protection. Business insurance is a great way to protect your personal assets from a number of events, such as being sued, if there’s a fire in your office, or if something happens with an employee. You’ll need to consider your specific business’ risks before deciding on a plan that’s right for you.
TYPES OF BUSINESS INSURANCE
Liability insurance covers your business in the event of claims or suits filed for mistakes or inability to complete a project.
Property insurance is much like home or renters insurance, and covers equipment, inventory, furniture, and other damages caused by fire, water, theft, etc.
Workers’ compensation insurance covers your business if you have employees who file a claim for injury acquired on the job. Even if you don’t have a high pressure, physical workplace, smaller injuries can still happen.
Home-based business insurance is necessary if you have expensive equipment, files, or even inventory in your home. Normal homeowners insurance won’t cover your business materials.
Product liability insurance is ideal for product-based businesses. You’ll want to protect your assets in the event that there is a product defect or lawsuit concerning damages caused by one of your products.
It’s easy to assume that health insurance is just a plan you pick once a year through work, or have to pay for through a public marketplace if you’re not traditionally employed. But your health insurance affects your overall financial stability and your long-term wealth. Why? Because if you don’t have sufficient coverage, you might be leaving yourself and your family open to medical expenses that can affect you for years to come.
Natural disasters happen but, unless you’re in an area where they’re common, you might overlook disaster insurance. Areas accustomed to hurricanes, floods, blizzards, or tornadoes usually lend themselves to disaster insurance, but that doesn’t mean you don’t need them if you live outside of those “hot zones.”
WHAT TO CONSIDER WITH DISASTER INSURANCE
Texas is a great example of why you need disaster insurance. In the last couple of years, there have been a number of weather events that have led to an increase in disaster claims across the state — but not everyone had coverage. Disaster insurance also goes up as more people file claims, so it might be ideal to sign up for it before a disaster happens.
Types of disaster coverage include flood, earthquake, fire and smoke, but can also range by region.
Figuring Out What Type of Insurance Is Right for You
While not all types of insurance are necessary for everyone, it does help to be aware of the options available to you. Not many people think about insurance until something happens, or until they visit with a Certified Financial Planner™ about their financial needs and goals. Insurance (in all its forms) can help you protect your current and future assets, as well as protect your home, loved ones, and possessions in the event that something happens. Talk to an insurance agent or your own financial advisor if you’re wondering if you need insurance protection.