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Daily Capital

5 Types of Insurance You Need Now to Save Money Later

Being prepared for the worst case scenario is the best way to handle anything that comes your way.

Having the right type of insurance can play a large role in ensuring your financial security in almost every aspect of your life. You can follow the money here, too — global yearly insurance expenditure is substantial. The total insurance expenditure in countries that are a part of the OECD, or the Organization for Economic Cooperation and Development,  was 9% of GDP in 2019.

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Want to make sure you’re covered now to save you money — and stress — in the future? Here’s a guide to the types of insurance you should be looking into.

What is Insurance Coverage and Why Do I Need It?

Put simply, insurance is a way to secure financial protection against expenses you may be at risk of incurring through some likely (or even unlikely) event. For example, health insurance may cover anything from routine checkups to major emergency surgery. Car insurance may cover routine events like the cost of a tow truck after you get a flat tire up to a car accident.

An insurance policy sets the terms of your insurance coverage between you, the policyholder, and your insurance provider.

Usually, being insured means paying a small fee to your insurance provider at monthly, yearly or an otherwise specified interval. This is known as a premium. The cost of your premium is determined by several factors. Your premium typically determines the level of coverage you have in the event your coverage is triggered by the event you’re insured against.

All in all, insurance coverage is an arrangement in which the insurer and the insured share the financial burden resulting from events experienced. Therefore, the most important benefit of insurance coverage is avoiding full financial risk.

5 Types of Insurance You Need but Might Not Have

There are many types of insurance. Some are broad, like health insurance, while others are super niche, like drone insurance. But there are several types that are well worth considering for anybody to invest in, like life insurance, pet insurance and others.

1. Life Insurance

If you have life insurance, it means your beneficiaries are paid a specific amount of money in the event of your death. In exchange, you pay a premium to your insurer as long as the contract is active. Nobody wants to think about how their loved ones will go on after they pass, but this is a small comfort you can pay for now to save your family financial stress later in an already-difficult time.

The total amount the insurer pays out at the end of the life insurance policy has a technical term – death benefit. Generally, the death benefit is tax-free in the US. It aims to ensure the policyholder’s beneficiaries continue to afford basic needs after his/her death.

The death benefit is due only when the policyholder dies of natural causes, accident, or an illness. Some insurers extend the acceptable terms to death by suicide. However, insurers are at liberty to withhold the death benefit if there is an element of fraud in the circumstances surrounding the insured’s death.

Read More: Term vs Whole Life Insurance: Which is Better?

Term Life Insurance

Term life insurance is one of the two main types of life insurance. As the name suggests, the policy lasts for a specified term. The insurance company and the policyholder agree on the term’s length at purchase. One might prefer term life insurance because it demands lower premiums. Also, the policy offers flexibility for those who do not wish to enter a permanent contract.

Whole Life Insurance

Whole life insurance is another option under the life insurance policy. Unlike the temporary nature of term life insurance, whole life insurance is a contract that terminates when the policyholder dies. The other name for this policy is permanent life insurance. This policy has expensive premiums.

2. Long-Term Disability Insurance

Long-term disability insurance protects you from the financial woes that can come with a long term illness, injury or disability. If you’re a disabled person, you may not be able to generate enough income to cover your expenses.

If you’re still in great health now, this may be the best time to consider this type of insurance. A typical policy provides regular income to pay for essential expenses including food, mortgage, clothing, car payments and utilities. Some policies include financial incentives for rehabilitation so that you can get back to work as soon as possible.

3. Pet Insurance

Pet insurance policy is part of non-life insurance or what is otherwise known as general insurance or property/casualty (P/C) insurance in the US. Under this policy, the insurer pays veterinary bills and for emergencies including injuries, theft, and illnesses.

Think of pet insurance in the same vein as your health insurance plan. The deductibles for a typical pet insurance policy range from $0 to $1,000. A deductible refers to the funds you must pay to the insurer before the company can pay a claim.

Depending on the terms of your specific policy, an insurer will cover either half or the entire bill. However, some insurers specify the maximum amount of annual payout for your pet’s medical expenses.

4. Homeowners or Renters Insurance

Homeowners/renters insurance is a subcategory of P/C insurance. Whether you own the house or you are a renter, this policy assumes the financial costs of damage to the property. The insurer will also cover the medical payments to third parties and legal liability expenses.

Homeowners’ insurance differs from renters’ insurance when it comes to the breadth of items under protection. For instance, the definition of property in the former policy includes the structure of the house and personal effects and furniture. The definition is narrower in the latter policy because it only refers to personal belongings.

Usually, the premiums for renters’ insurance policy are cheaper than homeowners’ insurance policy. That’s because home policies cover everything renters’ insurance does, plus the cost of repairing or replacing a home structure.

Is it possible to lower the homeowners’ insurance policy premiums? Yes. The following tips could help:

  • Go for a higher deductible – insurers tend to offer lower premiums when the deductible is significantly higher.
  • Install a home security system – you could get a discount if the security risks to the home are lower.
  • Move to a brick home – brick homes are sturdier against elements, which insurers will consider when pricing the policy.

5: Long-Term Care Insurance

Long-term care insurance extends the coverage of a basic life insurance policy. The technical term for this type of policy is a rider. A rider can do one or all of the following:

  • Adds the circumstances covered under the basic insurance policy.
  • Increases the coverage limits for circumstances already covered by the basic insurance policy.
  • Excludes specific claims covered under an existing policy.

As such, long-term care insurance is a modified life insurance policy that adds coverage for assisted living costs. Assisted living services are necessary when you cannot perform at least two activities of daily living (ADL).

Long-term care insurance extends the range of services you receive, such as chore services. It also increases the range of care options available to you. For instance, you can decide whether you want to receive care at an assisted living facility, nursing home, or your home. Most importantly, long-term care insurance relieves your loved ones of daily assistance tasks.

Bonus: Umbrella Insurance

When you buy an insurance policy for your home, car, or boat, the coverage often includes personal liability. For instance, homeowners’ insurance covers third-party injuries at your home. But what happens when the medical expenses of a person who breaks a leg after tripping on your home’s stairs during a party that you were hosting exceed the limits of the existing insurance policy?

This is the point where umbrella insurance becomes essential. Umbrella insurance pays for damages whose value exceeds the limits of the personal liability element of the base insurance policy. We use the term “base insurance policy” in this case to refer to homeowners’ insurance, car insurance, and so on.

Imagine the above scenario where a party-goer breaks a leg at your home. An extensive medical examination shows that the patient requires specialized treatment only available abroad. The total expenses are $150,000 and your current homeowners’ insurance carries only $100,000 liability coverage. It means the extra $50,000 must come from your pocket.

If you were lucky to have acquired umbrella insurance earlier on, the insurer will pay the extra expenses. Additionally, the policy will pay for any legal costs in case the party-goer litigates.

Get the Right Insurance Now and Save Money Later

Life happens, and it’s expensive. That’s why having the right type of insurance across several areas helps protect your finances in the future by investing in coverage today.

Read More: How Much Life Insurance Do You Really Need?

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Ruchi Gupta is a freelance writer.
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