8 Types of Insurance You Can’t Go Without

These are the three big types of auto insurance you need:

• Collision: If you’re at fault in a car accident, this pays for damages to your car.
• Comprehensive: This covers damage to your car unrelated to wrecks.
• Liability: If you’re at fault in a car accident, this covers things related to the other guy in the wreck. You need at least $500,000 in liability protection.

Other protection to consider adding to your policy (if available):

• Personal injury protection (PIP): This covers medical bills and lost wages caused by car accidents.
• Medical payments coverage (MedPay): This is a weaker version of PIP—and only worth getting if PIP isn’t available in your state.
• Uninsured or underinsured motorist coverage: This protects your car if you have a wreck with someone who’s uninsured or underinsured.

Health insurance is necessary (even when it’s costly). Take it from Shannon B., a member of the Ramsey Baby Steps Community on Facebook. Her father’s unexpected five-day hospital bill was a whopping $100,000. Whoa! Luckily, he had good health insurance, so he only wound up paying $800.

 Tips to Make Health Insurance More Affordable

• Use an employer-sponsored plan.
• Get a high-deductible policy to lower your premium (and get access to a Health Savings Account).
• Take advantage of discounts your insurance company offers.

Life insurance has one job: to replace your income if you die. It’s that simple.

• Stay away from whole life (aka “cash value”) insurance. It’s an overpriced rip-off that combines insurance with investing and gives you a terrible return rate.
• Only take out term life insurance. It simply provides a payout if you die while the policy is active. No gimmicks.

Why Term Life Insurance

• They’re active for a set term (usually 10–20 years) and you only need life insurance while someone relies on your income—like kids or a spouse.
• In those 10–20 years, you can work hard to get out of debt and pay off your house early.
• You can build wealth through investing in good growth stock mutual funds.
• You can work toward becoming self-insured—meaning that your finances are in such good shape that your family won’t have to worry about insurance when the term ends.

A good homeowners policy provides financial protection for your home and personal belongings. It should include the following types of coverage:

• Extended dwelling coverage: Pays to rebuild your home
• Personal property: Pays to replace your personal belongings
• Liability: Covers injuries and damages that happen on your property
• Additional living expenses: Reimburses your living expenses after the loss of an insured home
• Flood or earthquake insurance: Covers these extra perils, if you live in an area prone to those things

Tip: Increase your policy’s coverage any time the value of your home goes up.

Renter’s Insurance: Your policy should cover personal property, liability and additional living expenses. A $20,000 personal property limit works for most people.

Buckle up for this fact: 1 in 4 of today’s 20-year-olds will become disabled at some point before their 67th birthdays.¹ That’s why long-term disability insurance is a must.

When it comes to short-term disability, simply having 3–6 months of your typical expenses should be enough to cover you.

• But long-term disability insurance is the best way to cover you for injuries or illness longer than a few weeks or months.
• Plan on paying around 1–3% of your annual income for a policy.
• You’ll want a policy that covers 60–70% of your annual income.

Good LTC insurance will take care of expenses for assisted living, in-home care, and nursing home care if you can’t look after yourself.

• Medicare doesn’t cover the cost of long-term care.
• 70% of Americans over 65 will wind up needing long-term care.²
• The average annual cost for a private room at a nursing home is nearly $110,000.³ 
• Without coverage, costs come out of personal savings—like your retirement accounts.
• It’s an absolute must for anyone over 60.

While ID theft protection isn’t technically an insurance product, it’s important to have.

• Identity theft is becoming more common each year.
• If it does happen to you, you’ll have to fix your credit report, deal with banks, and jump through legal hoops. 
• Your policy should include restoration services (not just credit monitoring), so you’ll have a provider to help you with damage control.

An umbrella policy stacks on top of your homeowners and auto insurance policies to add an extra layer of liability protection in a lawsuit-happy world.

When do you need it? If you have a net worth of at least $500,000. Why? Because when you build wealth, you put a target on your butt.