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Insurance protects us and gives us peace of mind. Of course, it costs money, and sometimes we do not think about needing it until it is too late. Then we find ourselves in difficult situations. A big part of being financially secure and having a good plan in place that protects you and your loved ones is to ensure you have coverage for a variety of situations.
For example, what happens if you eventually need long-term care following an illness or injury? While there are state Medicaid-related programs like Freedomcare that help with the costs of long-term care, you may need more protection than that.
You protect yourself in terms of making sure you and your family are cared for with the appropriate levels of insurance. Moreover, you are also taking steps to secure your financial assets. The following is a guide to the types of insurance coverage everyone should aim to have.
If you drive, auto insurance is not a recommendation. Rather, it is a legal necessity in most states. According to 2019 data, a car accident, even if it does not involve injuries, could cost more than $12,000. If a crash is deadly, it potentially costs more than $1.7 million.
In the majority of states, you have to have basic liability auto insurance. Basic liability covers injuries or death, property damage, and legal fees when you are legally responsible for an accident.
Some states require that you have personal injury protection (PIP) and possibly uninsured motorist coverage. These types of coverage pay for medical expenses stemming from the accident and any injuries your passengers suffer — no matter who is at fault for the accident. This type of coverage also protects you in hit-and-run accidents or in accidents with uninsured drivers.
Also consider collision coverage that covers the costs of repairing or replacing your car if you are in a wreck and it has damaged or totaled. Comprehensive insurance covers losses not directly caused by a wreck, like theft or a flood.
Health insurance is an essential thing that you need to have, but it is also confusing and often expensive. Regardless of the downsides of buying health insurance, the risks of not having it are much greater.
Research shows that around 67% of people who file bankruptcy end up in that situation because of medical debt. Even just one seemingly small medical emergency possibly leads to you incurring hundreds of thousands of dollars of medical bills. Even if you do not visit the doctor often or you think of yourself as healthy, never go without insurance in this area.
If you opt for a high-deductible plan with lower monthly premium costs, open a Health Savings Account (HSA). An HSA is a tax-advantaged way to save money that you then use to pay medical expenses when you deal with them.
Some Things to Know About Health Insurance
- Most people who have health insurance get it through their employers. If your employer offers health insurance, you do not have to use marketplaces or government insurance exchanges unless you want an alternative. Most employers who offer insurance pay at least a portion of the premiums for their employees.
- If your employer does not offer insurance, begin looking at the online marketplaces for your state. You can also buy directly from an insurer or through a private exchange. If you go with these options, you are not eligible for income-based discounts on your monthly premiums in the form of tax credits.
- There are many different types of plans, so give yourself a crash course if you are buying your own insurance. For example, PPO stands for the preferred provider organization. With a PPO, you do not have to stay in-network, but out-of-network care is more expensive.
- The health insurance network is something to carefully compare as you choose health insurance. The network is a reference to medical providers and facilities a health plan contracts with to provide care. If you go to an in-network provider, costs are lower.
- Out-of-pocket costs are the costs you are responsible for paying for care, and a plan summary should detail these. For example, your copay is a flat fee that you pay every time you receive a health care service. A deductible is what you pay for care before coverage kicks in. Premiums are the monthly total you pay for your plan.
- In nearly all cases, the higher your premium, the lower your out-of-pocket insurance costs are.
Long-term disability (LTD) can be scary to think about, but you put yourself and your family in a potentially bad situation if you avoid it or act as if nothing will ever happen to you. If you choose good long-term disability insurance, it places you in a position to keep up your same lifestyle even if you cannot work.
A monthly benefit pays out when someone has long-term disability coverage. It is usually 50-60% of the insured person’s salary for covered disabilities. The disability coverage usually begins to pay after short-term disability coverage ends.
Workers’ compensation is similar in that it also pays for disabilities, but long-term disability insurance coverage is not restricted to injuries or disabilities that occur while working.
Short-term disability insurance is something you usually get from your employer, and it lasts for only a few months. You can buy short-term disability coverage on your own, but it is complex and expensive.
Short-term disability coverage is also for when you are sick or injured and cannot work as a result. It does not cover injuries you sustain on the job, because workers’ compensation covers that. The benefits of a short-term disability policy kick in faster than long-term disability insurance because there is a shorter waiting period.
The waiting period is another name for the elimination period. The waiting or elimination period is the time between when you are disabled and when you start to receive benefits. For short-term disability insurance, the waiting period is usually no longer than two weeks. Short-term disability insurance rarely sells on the individual market.
Homeowner’s or Renter’s
If you buy a home, you want to make sure you take the time to find the right homeowner’s insurance. Homeowner’s insurance policies should cover the expense of replacing the structure and contents of your property. You also want a policy that covers the cost of living elsewhere while repairs take place.
The cost of rebuilding does not have to include the land cost, because you already own that. In some cases, the cost to replace your home is less or more than what you paid for it. Get an estimate based on what builders in your local area charge per square foot.
You want homeowner’s insurance that also protects you if there are any injuries on your property. Renter’s insurance is another type of property insurance, covering personal belongings and liability as well as additional living expenses for covered losses.
Life insurance pays a sum of cash that is often tax-free in the event of the policyholder’s death. The beneficiaries you name in your policy get that cash and use it to make up for income loss stemming from your death. Beneficiaries can also use a death benefit to cover end-of-life expenses.
There are two primary types of life insurance. The first is term life insurance. You might also see this called pure life insurance. This type of insurance provides protection to your loved ones if you die in a certain period. The policies usually last anywhere from 10 to 30 years, and then you can renew the policy or convert it to whole life insurance. You can also end it if you choose at that time. Whole life insurance is permanent life insurance, and it is available for your lifetime.
Term life insurance is preferable for many people. This is because it is easy to get and it is relatively affordable. As you get older, the price of life insurance premiums goes up.
If you get long-term care insurance, it helps to cover the costs of care, like nursing home care or moving to an assisted living facility. Sometimes long-term care insurance also has coverage for specific things like helping with basic daily tasks.
Finally, if you are a business owner, make sure you have business insurance. This protects you against property damage, lawsuits, thefts, and other situations that are risks of owning a business.
There are many different types of business insurance policies. One of the most basic and foundational is a business owner’s policy, combining the most important types of insurance for a small business. A business owner’s policy might include general liability coverage and commercial property insurance, for example. Then, if your company grows, you might add on to your insurance coverage.
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