Life is filled with uncertainty. While some of these unknowns make for an exciting experience, others are unwelcome sources of stress and strife.
That’s where insurance enters the picture. Generally speaking, insurance is a system where you pay money out-of-pocket – referred to as a premium – in order to have access to financial compensation in the wake of a catastrophic or traumatic event.
In other words, insurance is a system where we protect ourselves against the financial repercussions of an unlikely event. Insurance companies know most people who buy policies will never use them. As a result, there’s always a large pool of money available for those who do.
Now that we have that out of the way, it’s time to take a look at some common types of insurance to consider:
Term Life
Life insurance is a policy that reimburses certain individuals – referred to as beneficiaries – in the event of someone’s unexpected death. Typically, the beneficiaries are close family members, but they can also be business partners. A term life insurance policy provides protection for a set number of years. For instance, if you buy a 15-year term life policy at age 25, it will be in effect until your 41st birthday.
Whole-Life
As the name suggests, a whole life insurance policy covers an individual for the entirety of their life. As a result, whole-life insurance policies are significantly more expensive than term policies. On average, a whole life insurance policy is five to 15 times more costly than a comparable term policy.
Disability
Many illnesses and injuries render us incapable of working until we’re healed. But that could mean weeks or even months of unemployment. How will you pay the bills and put food on the table? The solution is what is known as a disability insurance policy. As the name suggests, it covers you if you are too sick or hurt to work.
Liability
In most jurisdictions, it’s illegal to drive without auto insurance coverage. Auto insurance is generally split into two types: liability and full coverage. Liability insurance only covers damages resulting from the policyholder’s negligence. For instance, if you rear-end another vehicle, the policy will cover the damages to their car, and any injuries sustained up to a certain amount. It will not help pay for the damage done to your own vehicle or any injuries you sustain in the accident.
Full Coverage
Full coverage car insurance is required by law whenever there’s a lien on a vehicle. In other words, if you are making car payments, you must have full coverage. While full coverage is more expensive than liability-only insurance, the upside is it provides a lot more coverage. Let’s refer to the example used in the previous section; if you have full coverage and cause an accident, the policy will cover the damage to your car as well as that of the other vehicle(s) involved.
Health
Most countries have a single-payer approach to health insurance. That means everyone is covered, and a single government-backed entity manages the entire system. But in countries like the United States, individuals are tasked with getting their own health insurance coverage. While most Americans are covered through employer-provided health insurance, others are required to pick their own plan through the Healthcare Marketplace.
Dental
Oral health is part of overall health, so you’d think dental work is covered by health insurance. But you’d be wrong. Dental insurance is its own type of insurance policy.
Home
Home insurance isn’t required by law. But if you own a home and have a mortgage, the bank will require you to have a comprehensive policy. Even if you’ve paid off your mortgage, homeowner’s insurance is still recommended in order to safeguard against catastrophic damage and risk of injury.
Renter
What happens when your rented apartment is destroyed by fire? Unless you have a renter’s insurance policy, you stand to lose everything. While it won’t replace the items you’ve lost, it will provide the financial support needed to recover.
The uncertainties of life make for a fun and exciting existence. But they also stand to destroy everything we hold dear. Insurance is the best way to minimize the damage of unexpected disasters and misfortune.
Julie Steinbeck is a freelance writer from Florida. She enjoys covering topics related to business, finance, and travel.
