When you are considering your insurance options, it is easy to be overwhelmed. With many policies and types, it is important to take some time to learn more about your insurance options. Once you have a better understanding of insurance, you’ll be prepared to make decisions about your insurance needs. 

Luckily, we will be taking a deep dive into the world of insurance. You’ll walk away from this post with a better understanding of insurance. With that, let’s get started. 

Understanding insurance

As you start to research your insurance options, you’ll quickly discover there is a seemingly unlimited number of policies. Although choosing the right insurance policy can get complicated, making a good decision is critical. Otherwise, you could be overpaying for a policy or simply not have enough coverage on hand. 

Here’s a closer look at why insurance is important and the types of insurance you definitely need to have. 

Understanding Insurance Options

Why insurance is important

Before we dive into the different insurance types, you’ll want to understand why insurance is important. Often, insurance can feel like an expensive addition to squeeze into your budget without an upside. 

The goal of insurance is to protect you against any financial or physical liabilities. You can protect yourself from any of life’s unexpected surprises. For example, you can protect yourself from the financial ramifications of a car accident. Beyond your liabilities, you can also protect your family from a future without your financial support. 

 

Understanding health insurance

Health insurance is one of the insurance types that pops to the front of your mind when you start thinking about insurance. And with good reason! Health care costs can be extremely high. You could be one medical emergency away from a perilous financial position. With that, it is important to understand your health insurance options. 

Although health insurance itself can be an expensive purchase, you need to find a way to obtain coverage. The most traditional health insurance options are through your full-time employer. However, not everyone has access to an affordable employer-sponsored plan. If you don’t have an employer option, then seek out a plan on the healthcare marketplace

Beyond a health insurance plan, you should also consider contributing to a Health Savings Account (HSA). With an HSA, you can contribute pre-tax dollars and allow the funds to grow for future use. A combination of an HSA and health insurance plan should help you manage any health care costs that come your way. 

 

Understanding car insurance

If you drive a car, you’ll need to have auto insurance. Beyond your financial protection, it is against the law to drive around without insurance. With that, it is critical to consider your auto insurance options carefully. 

The major choice that you’ll need to make is between liability, collision, and comprehensive coverage. Here’s the breakdown:

  • Liability coverage. With liability coverage, the insurance policy will cover the expenses related to injuries or property damage. This is the bare bones of auto insurance that you’ll likely need to purchase. Typically, you’ll be required to carry a minimum amount of liability coverage that varies by state. Check into the details for your state. 
  • Collision coverage. You may have noticed that liability coverage only covers expenses related to injuries or property damage. Importantly, liability coverage doesn’t offer protection for your car. Collision coverage can help to cover the cost of repairing or replacing your vehicle. 
  • Comprehensive coverage. Beyond car accidents, you may find that you need help covering car repairs or a replacement due to natural disasters, vandals, or theft. That’s where comprehensive coverage comes in. In this case, the insurance company would help you replace or repair the vehicle due to damage that didn’t stem from a crash. 

The right choice for you will depend on your unique situation. You’ll need to consider the minimum requirements imposed by your state, your financial position, and your risk tolerance. You may choose the bare-bones option with the understanding that you can cover other expenses out of pocket. Or you may choose a comprehensive policy so that you don’t have to worry about any unexpected car expenses. 

Understanding Insurance Goals

Understanding life insurance

Life insurance protects your dependents in the unlikely event that you pass away prematurely. It can be disturbing to consider your own untimely demise. But it is important to think about the financial impacts of your unexpected passing on your family. 

In most cases, the financial impacts of losing a breadwinner can be dramatic. Not only would your family have to deal with the emotional impact of your loss, but also scramble to pay the bills. With life insurance, you can safeguard your family’s financial future.

As you consider your life insurance options, look for a policy that would cover the financial obligations you would leave behind. You’ll want to factor in any outstanding debt that could put a financial strain on your family. Additionally, you should consider the financial impacts of your family’s future plans. For example, if you plan to pay for your child’s college education, you need to factor that into your life insurance policy. 

In most cases, a term life insurance policy is the best option. The plan will provide a death benefit to your family that can put your mind at ease. Unlike term life insurance, whole life insurance policies also provide a cash value component that can add to the plan’s overall cost. Although whole life insurance policies are more costly, the added benefit is debatable. 

Instead of paying more for a whole life insurance policy, consider obtaining a term life insurance policy that will provide peace of mind. Then look for alternative ways to invest the difference. With that, you can have the best of both worlds because you can leave the investments behind for your family without an insurance company’s involvement and secure a cash death benefit for your family. 

 

The bottom line

The three insurance types that we’ve covered today should be part of your financial foundation. As you continue to build your solid financial foundation, you should consider other insurance options such as homeowners, renters, and umbrella policies. But get started by researching your options for health insurance, life insurance, and auto insurance.