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What Kind of Insurance Do You Need?

Find out the 5 types of insurance you really need and how much is enough.

By
Laura Adams, MBA,
December 25, 2013
Episode #158

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This article is the fourth in our five-part series about taking charge of your finances. Today’s post is about insurance—which types to have and how much coverage is necessary to keep you protected.

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Why You Need Insurance

Without adequate insurance, everything that we’ve talked about in the prior three posts—setting goals, saving, and investing—could all be destroyed.

I really hate to sound like a doomsayer, but a catastrophic event like a health problem, a car accident, or a death in your family could wipe out everything you’ve worked so hard to earn.

It’s not pleasant to think about what bad things could happen, and maybe that’s why so many people are underinsured. But managing different types of risk is easy, in a financial sense, because most of them can be passed on to a third party, like a health or life insurance company.

Having enough of the right kinds of insurance allows you to protect yourself and those you love from something unexpected jeopardizing your financial security and happiness.

What Kinds of Insurance Do You Need?

There are endless types of insurance, from policies that protect airplanes to those that cover websites. But I’m going to focus on the five types that are most important for individuals and families:

Type #1: Health Insurance

Health insurance is the most important insurance to have. Without it you risk being stuck with a large bill if you have any kind of medical issue from the flu to a broken bone. Even a quick emergency room visit or a basic hospital bill can cost thousands of dollars.

Having enough of the right kinds of insurance allows you to protect yourself and those you love from something unexpected jeopardizing your financial security and happiness.

Starting in 2014, the Affordable Care Act (also known as Obamacare) requires just about every American to have health insurance, or pay a penalty. If you can’t get affordable health coverage at work, or if you’re self-employed or unemployed, you can purchase a policy through your state’s health insurance marketplace or a qualified insurance broker.

See also: What Is Obamacare? 8 Facts You Should Know

 

Depending on your income and family size, you may be eligible for a government assistance that will reduce the cost. Also note that health care reform prohibits insurers from denying you coverage or raising rates if you have a pre-existing medical condition.

Insurancequotes.com has an Obamacare Eligibility Calculator that shows your eligibility for all subsidized health insurance benefits, including Obamacare, Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP).

Type #2: Disability Insurance

Disability insurance provides a percentage of replacement income if you’re unable to work due to a disability, illness, or accident.

Remember that health insurance only addresses your medical bills; it doesn’t pay your living expenses, like housing or food, if you can’t earn money for an extended period of time. According to information on insure.com, you have a one in five chance of becoming disabled during your working years. You’re more likely to suffer a disability than you are to die before the age of 65! 

And when a long-term disability occurs, the average absence from work is 2½ years. That could cause a major financial strain for you or family members who depend on your income. Social Security is only available after you’ve been out of work for a year and are completely disabled. Worker’s compensation insurance is only for work-related injuries. 

If you don’t have the option to purchase a disability policy at work, (or if you do but it’s not sufficient), purchase a private policy for yourself and have enough emergency money set aside to tide you over until coverage begins. 

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