What Types of Insurance Do I Really Need?

What Types of Insurance Do I Really Need?

Dear Lifehacker,I know I should have health insurance and renter's insurance, but I got a letter in the mail that said I should probably have flood insurance too. My coworker is always going on about "whole life" insurance, but I have life insurance through work. What types of insurance should I actually have, and what's just a scam?

Sincerely,Not So Insured

Dear Not So Insured,Insurance is a tricky business. There are more specific insurance types out there than you'll ever actually need, so don't feel bad if your head spins every time you watch an infomercial telling you that you need a specific kind of insurance, or more life insurance than you already have, or some special kind of medical or health insurance. Let's try to boil things down so you know what you need, and you have resources to go looking for other types if they're applicable to you.

The Insurance Almost Everyone Needs

Let's start with the types of insurance that just about everyone needs, regardless of where you live or what your personal condition is:

Health and Disability Insurance: This is the big one. Whether you get it through your employer (or a spouse or partner's employer), through a labor organization or union, or individually through the federal health insurance marketplace or a state equivalent, quality health insurance will make sure you're able to see a doctor when you're sick, get a routine checkup, purchase prescrription medication, or seek medical care in the case of an unexpected illness or an accident. Disability insurance, also usually offered by your employer or through an independent marketplace, is designed to provide supplemental income in the case that you're hurt and unable to work for a short or long period of time. Both are all but necessary. Your health is your most important asset—putting aside all of the controversies around it, health insurance makes sure you can preserve it.

Homeowner's or Renter's Insurance: Whether you own your own home or you're renting from a landlord, you should have some kind of property insurance that protects your belongings in the event of a fire, burglary, weather event, or some other manmade or natural disaster. We've sung the praises of renter's insurance before, and even told you how you can get it for free with other insutance policies. In many cases, your car insurance company will just give it away just because you're already a customer. If you own your own home, homeowner's insurance serves the purpose, and protects your property and investment against even more threats. Your mortgage may even require that you have homeowner's insurance. It's also improtant to note that homeowner's or renter's insurance may not cover water or flooding damage. You'll also need flood insurance from the federal government, something we've reminded you to get before.

Auto Insurance: If you don't drive or don't own a vehicle, you can skip this one, but if you do, you should absolutely have at least the minimum required auto insurance coverage for your state. Ideally, you'd have more, since some states only require you carry enough coverage to insure against the damage of another vehicle or injury or death of another person should you be at fault in an accident—they may not require you have enough to repair your own damage, or to cover against other incidents, fender benders, rental cars, or other problems. Find out what the minimum is in your state or region, then compare that to your current level of coverage. You don't wait until an accident to find out what your policy does and doesn't cover.

Life Insurance: Life insurance is also important, but it's often overlooked. Like health insurance, most people get life insurance through their employer. It's designed to make the lives of your spouse, children, or parents a little easier in the case of your death. Ideally it would help cover funeral costs, or at least provide a short-term revenue stream for your loved ones so they have time to get back on their feet after your passing. Most employer-based life insurance policies pay out a percentage of your annual salary in case of your death, and allow you to buy more at a decent rate if you think your family will need it. In some cases, your auto or property insurer may offer life insurance as well. If you're young, you may not think too much about life insurance, but you should at least have some. Of course, the older you get, the more important life insurance is—it'll make things much easier on the ones you leave behind.

Those four types of insurance are the common types that almost everyone should have. We can excuse you from having auto insurance, for example, if you don't drive a car, or property insurance if you live with your parents or a family member (and your possessions are covered by their policy), but if you're a working adult out on your own, you should probably have at least considered all of these, if not for your personal protection, but for the protection of people around you or close to you.

Other Types of Insurance You Might Consider

That said, they're not the only types of insurance out there that you may want to consider, depending on your specific situation, age, or occupation. Here are a few others you may want to look into:

Pet insurance: If you have a beloved animal companion, pet insurance can be just as important as your own health insurance. Depending on the pet you have, medications, surgeries, and trips to the vet can add up quickly, and pet insurance can help you keep those costs under control, give you access to affordable medications for your pet, and help you find and pay for expensive but life-saving treatments. Pet insurance can pay out in the event of an illness or death of your pet, or even if your pet is lost or stolen. Unlike health insurance though, pet insurance reimburses you for your costs (like property insurance), as opposed to paying up front and deciding what to cover and what not to cover at the time of treatment. It's not for everyone, but if your pet means the world to you, you should look into it. Some employers offer pet insurance (more now than ever), but do your homework. The ASPCA offers pet insurance, as does VPI and PetPlan. Shop around for the level of coverage you need, and deductibles and costs you can afford.

GAP Insurance: If you prefer new cars to used cars, the thrill of being the first butt in the seat can wear off quickly if you have an accident, a total, or suddenly have to sell that brand new car for less than you owe on it. That's where GAP (Guaranteed Auto Protection) insurance comes in—strictly, it covers the monetary gap between the amount the vehicle is worth and the amount you owe on it. That way if you need to sell it or you get an insurance payout and it's less than you owe on the vehicle, you'll have insurance to cover the rest. You don't need this if you're not buying new or leasing a vehicle, but if you are, you should certainly consider it, since the value of your car diminishes significantly as soon as you drive it off the lot. GAP insurance is usually available from your auto insurance provider.

Whole Life Insurance: Whole Life Insurance is, strictly, an insurance policy that covers and can pay back out to you over the course of your entire life—so while it can pay out upon your death to your loved ones the way term life insurance does, it can also be used in your later years to cover medical expenses, or it can be borrowed against. However, that's not the complete picture—premiums are high, benefits can be often low, and the whole category of insurance is difficult to get your head around. This article from US News Money breaks it down very well, and this Wall Street Journal article puts an even finer point on the argument against it. Strictly speaking, most people don't need this—the returns on your investment in whole life insurance are terrible (although no more terrible than many other traditional options), and your money can be best served elsewhere. However, do your homework, talk to your life insurance provider, and see if it makes sense for you.

Travel Insurance: Travel insurance is often hailed as a lifesaving resource should something go horribly wrong with your vacation or trip overseas—it can offer money to replace lost or stolen luggage, cover medical expenses while you're abroad, or even help you re-book transportation if your original travel plans are canceled or you miss a flight. The trouble with travel insurance is that it almost always duplicates coverage you already have. Before you pay up for travel insurance, make sure your health insurance doesn't already offer you a way to get medical care abroad. Similarly, check with your credit card or the airline or booking company you used to book your travel—they usually have numbers to call and services they offer if your flight is cancelled, you miss a plane, or something else crazy happens, like your luggage is lost or stolen. Your renter's or homeowner's insurance policy may even cover your possessions while you're traveling. Travel insurance can be useful, but it's often an expensive duplication of services that seems attractive because it's in one place, but is largely unnecessary.

Supplemental Insurance: Supplemental insurance (aka, Aflac, although they're not the only people who offer it), is designed to bridge any shortfalls from your traditional insurance plans. It can pay for bills, rent, mortgage expenses, even groceries if you're waiting for another insurance company to pay out. Supplemental insurance can also cover extra expenses that your normal policies won't, like added costs for expensive treatments, cancer therapy or surgery, and so on. Essentially, it's designed to soften the financial blow of other insurance shortfalls. The problem with supplemental insurance is that even though it sounds attractive, you may not need it, and you wind up over-insuring yourself, spending money better served invested or saved in case of an emergency. Read the fine print, check your current levels of coverage, and then consider it. Most people don't need it, regardless of how heavily it's advertised on TV. This goes for other types of supplemental insurance, like cancer insurance and mortgage life insurance, both designed to piggyback on existing policies for very specific situations.

Those are just a few more types of insurance you're probably seen in advertisements or suggested to you by others—possibly even your employer. We're not saying you should or shouldn't invest in any of them, but only that you carefully read the fine print and the coverage offered by each of them, then compare them against your current policies to make sure you're not paying for expensive overlap.

For example, some people swear by pet insurance, for example, while other people would prefer to just save their money in an emergency fund in case their companion needs surgery or medicine. The same applies to travel insurance—you wouldn't want to spend a ton of money on travel insurance only to find out that your health insurance provider already covers medical care in the country you're planning to visit.

Stick to the first four, and then branch out from there, Not So Insured. If any of the others are particularly applicable to your situation, then look into them, but as long as you've got the basics covered, you're already in good shape. Good luck!

Sincerely,Lifehacker

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