Why Do I Need Insurance?
Insurance can protect you financially in a number of ways
You've worked hard to build a solid financial footing for you and your family, so you want to be sure that everything is protected. Accidents and disasters can and do happen, and if you aren’t adequately insured, it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head. As you evaluate the potential gaps in your insurance coverage, consider which policies you may want to include your short- and long-term financial plan.
You can insure almost anything under the sun, but certain things need to be properly insured. This insurance need typically includes your life, your health, and your property. At a minimum, it's important to have:
- Health insurance to cover medical costs for yourself and your family
- Life insurance can provide financial security to your loved ones at your death
- Homeowner's or renter's insurance insures your home and valuable possessions
- Auto insurance to protect your vehicle
When comparing policies, consider how much coverage you need, what premiums you can afford, and where you'd like to set your deductible.
While you want to ensure that you're adequately protected, there are a lot of insurance policies that are unnecessary for most people. Purchasing the wrong insurance—or spending too much on insurance—can do more harm than good.
Types of insurance you may not need can include mortgage life insurance—sometimes called credit life insurance—cancer or specific disease insurance, and travel or flight insurance. In the case of travel and flight insurance, for example, these may be included as part of your credit card's travel benefits. Before buying these types of coverage, think carefully about the return on investment you may get.
How much coverage you need is an important question. You may find that you don't need any life insurance or that you need a million dollars or more in coverage. Generally, there is an inverse relationship between one's financial capital (hard assets currently owned) and one's human capital (future earning potential). The greater one's financial capital, the lower the need for life insurance.
That said, many factors need to be considered before purchasing life insurance. A good place to start is to ask yourself what you need life insurance to do for you and your family. For example, you may only need enough coverage to pay for final expenses. Or, you may want to have enough life insurance to pay off the mortgage, put your kids through college, and cover everyday living expenses for your family. Finding out whether or not you need life insurance, and if so, how much is a good place to begin.
Once you've decided how much life insurance you need, the thing to consider is what type of life insurance is best. You may choose a term life policy, which covers you for a set term and tends to have the lowest premiums of any life insurance option. Or, you may prefer permanent coverage in the form of whole life, universal life, or variable life coverage. While these policies may carry higher premiums, they offer the benefit of lifetime coverage with the potential to build cash value. It's important to weigh the pros and cons of both and compare those to your life insurance needs.
If you own a vehicle, you need to have it insured. Car insurance can protect you if you get into an accident or if your car is stolen or damaged due to vandalism or a natural disaster. Auto insurance is a very competitive industry, and there are a lot of options available to you. Finding the right mix of adequate coverage at a good price can be challenging. Learn how to find the best auto policy for you.
For many people, their home is one of their biggest assets, so it makes sense to provide adequate coverage. There are different types of coverage you may need. Traditional homeowner's insurance is at the top of the list. But, you may also need additional coverage if you live in an area that's prone to certain natural disasters, such as floods, wildfires, or earthquakes. Insuring something expensive, such as a house, comes at a price, but there are many ways that you can save money on your homeowners' insurance.