Types of Insurance: What You Need to Know

Insurance, in concept, is something we all know we need.  Most of us carry multiple types of insurance such as life, auto, mortgage, and health insurance. The question is whether or not you’re covered for the right things. Do you have enough insurance coverage? Do you have too much coverage?

It’s easy for insurance to take a back seat when it comes to managing finances, building savings, or planning a retirement. However, insurance plays a key role in unexpected accidents or natural disasters. Take a look at the main types of insurance available to decide which ones you need to keep yourself and your family protected.

Types of Insurance

Homeowners Insurance

If you’re looking to protect your new home, homeowners insurance has you covered. While this type of insurance is not technically required if you own a home, it may be required if you finance your home with a mortgage. Homeowners insurance typically covers:

  • The Structure — Insurance will cover home repairs or a complete rebuild if your structure has been damaged by fire, hurricane, hail, lightning, or another natural disaster. It may also cover detached garages and sheds.
  • Your Belongings — You’ll be reimbursed for any personal belongings inside your home in the event that they’re stolen or destroyed. This includes furniture, clothes, electronics, and other personal items. Your policy may also protect items such as jewelry, clothes, luggage, and camera equipment when you travel.
  • Your Liability –– The insurance company will pay for any bodily injury or property damage that you, a member of your immediate family, or a family pet causes to another person. The policy may cover the cost of court fees if necessary, and provides no-fault medical coverage if someone is injured in your home or on your property. Plus, like your personal belongings, liability is covered while you’re traveling.
  • Additional Living Expenses — In the event that you are temporarily unable to live in your home due to an insured disaster, the insurance company will pay for your stay in a hotel and cover food costs. However, there is usually a time limit on how long the insurance company can pay for these expenses.

Renters Insurance

While your landlord will most likely have an insurance policy for the physical space you are renting, the policy only covers the structure itself, leaving your personal property vulnerable should an accident occur. It’s estimated that the average renter owns close to $20,000 worth of personal property. Could you afford to replace your belongings if they were destroyed or stolen? Similar to homeowners insurance, renters insurance will cover:

  • Your Personal Belongings — You’ll be reimbursed for personal items such as clothes, electronics, and furniture in the event of an extreme event like fire, theft, power surges, or water damage. Your belongings will also be protected and insured while you travel.
  • Your Liability — The insurance company will take care of medical expenses if a guest is injured in your rented unit. They will also pay for accidental property damages caused by negligence.
  • Additional Living Expenses — In the event that you are displaced from your rental unit after an accident or natural disaster, the insurance company will cover your temporary living expenses.

Some rental agencies and landlords require tenants to purchase renters insurance. To get started, compile an inventory list of all your belongings (it’s best to take photos of your items, as well) to help asses how much coverage you will need. Keep this list in a safe place that you can quickly access in the case of an emergency. Then, decide what type of renters insurance plan will work best for you: actual cash value or replacement value.

Actual cash value policies cover your belongings for what they are worth at the time of inventory and consider the depreciated cash value and usage of your property. Should you choose this plan, you would be paid for the depreciated value of your items. Replacement cash value plans will pay the amount it costs to buy a new item. This plan usually involves a slightly higher premium, as it will cost the insurance company more if you filed a claim.

Auto Insurance

According to the National Highway Traffic Safety Administration, there was an estimated 7,277,000 police-reported motor vehicle crashes in the U.S. in 2016. Ensure you’re covered ahead of time by getting car insurance! It’ll keep you from paying out-of-pocket for repairs and medical bills if you’re involved in a future car accident.

While minimum car insurance requirements vary by state, you will most likely need coverage for the following:

  • Your Liability — The insurance company will pay for any damage or injuries you cause other individuals in an accident.
  • Any Personal Injuries — The insurance company will cover any medical bills you or your passengers have to pay if you’re injured in an accident. In the event of a death, the insurance company may pay for funeral costs.
  • Uninsured or Underinsured Motorists — The insurance company will pay for medical expenses if you’re injured in an accident that’s caused by an individual who is uninsured or underinsured. You may also opt for uninsured motorist property damage (UMPD), which requires the insurance company to pay for the repair or replacement of your car if an uninsured driver totals your vehicle.
  • Collision and Comprehensive — The insurance company pays for repairs to your car or reimburses you for its current value if it’s beyond repair. While collision covers you in the event that your car crashes into an object or another car, comprehensive covers you if your car is stolen or damaged by unexpected events such as storms, floods, falling objects, explosions, earthquakes, vandalism, or contact with an animal.

There are many factors that contribute to how much you pay for your car insurance. However, if you’re a credit union member, TruStage™ Insurance Agency can offer you discounted rates, online services, and 24/7 claim support.

Health/Medical Insurance

There are two types of health insurance — private and public. Private insurance is usually offered through employers, but can be purchased individually if desired. However, buying your own health insurance generally costs more.

Public insurance is provided by the government and includes both Medicaid and Medicare. Medicaid is a program that assists lower-income individuals and families with medical care payments. Medicare assists with medical care payments for individuals age 65 or older. Younger people may receive Medicare if they have certain disabilities or health issues.

Most plans, whether public or private, cover any tests, prescription drugs, and treatment services needed. Additional benefits and specifications can vary by insurance plan.

The Affordable Care Act requires citizens and permanent residents of the U.S. to have at least the minimum health insurance coverage. If you can afford health insurance and choose not to get it, you may have to pay a penalty fee every year for each person in your family that isn’t covered. The fee is to encourage most, if not all, U.S. citizens to become covered by health insurance.

Dental Insurance

Dental insurance is usually offered by employers. It generally covers 6-month check-ups and the cost of any necessary dental work. While it doesn’t cover cosmetic work, this type of insurance benefits individuals who are prone to dental issues.

Vision Insurance

Vision insurance plans usually cover or reduce the cost of preventative eye exams and prescription eyewear such as glasses or contacts. In some cases, elective vision correction surgery may be discounted.

This type of insurance differs from traditional insurance. While most insurance policies provide unlimited benefits after a certain amount of copays and deductibles are met, many vision insurance plans simply provide benefits and discounts for an annual premium.

Disability Insurance

Is your work the main source of income for your family? If so, you may want to consider preparing now in case you can’t work for any length of time due to an illness or injury. There are multiple types of disability insurance including:

  • Credit Disability — The insurance company will protect your loans if you become disabled or ill and are unable to work.
  • Social Security Disability — If you’ve worked long enough and paid Social Security taxes, the Social Security Administration may offer disability benefits. These benefits are provided if you can no longer work or your disability has lasted or is expected to last at least one year. Individuals continue to receive benefits until they can return to work or reach retirement age. However, disability cases will most likely be reviewed periodically to determine whether or not the condition still qualifies as a disability.
  • Short-Term Disability — The insurance company will typically replace 60-70% of your base salary. The benefits last no more than 26-30 weeks.
  • Long-Term Disability — Once short-term disability benefits run out, the insurance company will typically replace 40-60% of your base salary. The long-term benefits usually last until you can return to work. However, depending on the policy, there may be a limit on the number of years you can receive long-term disability benefits.

While most employers offer short and long-term disability insurance, you may be able to extend that coverage or purchase your own policy if needed. However, extending the coverage offered by your employer is usually the cheaper option and won’t require you to take an additional physical exam.

Life Insurance

It’s never too early to think realistically about the income you contribute to your household and the expenses that would need to be covered if you unexpectedly passed away. From funeral expenses to outstanding debts and your child’s future education, life insurance has the ability to protect your family financially.

There are a number of insurance plans that you can choose from, allowing you to select the plan that is best suited for your family and unique situation. There are plans that provide coverage for a fixed period of time (term and term universal life), plans that provide permanent coverage (whole life and blended life), or coverage that includes investment options (universal life and variable life).

While most employers offer a life insurance plan as a benefit, it should only be supplemental to your personally-purchased life insurance plan. This will ensure your family is well-protected. Some factors that can affect the cost of your personal life insurance plan are:

  • Age
  • Overall health
  • Driving record
  • Whether you have a high-risk job
  • Whether you have a high-risk hobby

Buying life insurance is only the first step in the process. You should reevaluate your life insurance periodically, especially when getting married, buying a new house, or starting or expanding your family. Keeping your beneficiary information up-to-date is also recommended.

Accidental Death & Dismemberment Insurance

While it may be difficult to think about, the possibility of accidental death or serious injury should be a main concern. If you’re worried about leaving your family with financial issues as a result of a fatal or detrimental accident, you can prepare with another type of life insurance called AD&D insurance.

This type of insurance will require an insurance company to pay you or your beneficiaries a specified amount following your death or an accident that results in you losing your eyesight, speech, hearing, and/or a limb. In the case of body dismemberment, the insurance company may pay out a percentage of the specified amount per lost member. Partial or complete paralysis payouts may vary.

Travel Insurance

Depending on the provider, travel insurance can cover medical emergencies while traveling, lost or stolen luggage, and the costs of canceling, delaying, or shortening the length of your trip. This insurance may also be responsible for personal liability in the event that you’re sued for causing injury or damaging property.

While travel insurance usually won’t cover pre-existing medical conditions, it offers reassurance that medical treatment will be taken care of and paid for if needed. It’s important to note, however, that if you plan on participating in any activities deemed “dangerous,” you may have to pay an additional cost. “Dangerous” activities would include adventure sports like cross-country skiing, water skiing, wakeboarding, horseback riding, and motorcycle or motor scooter riding.

Pet Insurance

For many people, pets are family members. In unforeseen circumstances in which pets become ill or hurt, having pet insurance will spare you from paying out-of-pocket for treatments. It’s a great investment for breeds that are more prone to medical issues.

While looking into insurance for your pet, it’s important to note that all regular vaccinations must be kept up-to-date. If those vaccinations are not completed, the insurance provider may not pay for the cost of emergency medical care when needed.

It should also be noted that many providers may not cover senior pets or pets that have existing medical conditions. Spaying and neutering are usually not included in the coverage either. Instead, pet insurance can cover vet bills, the loss or theft of your pet, treatment for behavioral issues, liability if your pet causes harm to others, and unexpected death by illness or injury.

Which Insurance Plans Do I Need?

There are a lot of details to sort out when it comes to insurance. Use our graphic to compare and contrast the different types of insurance to figure out which ones could benefit you!

Infographic of the different types of insurance coverage that compares and contrasts advantages, disadvantages, and monthly cost

Still unsure about what kind of insurance you need? Talk with one of our financial experts or explore additional resources offered by TruStage Insurance.

Kara Vincent
Kara Vincent

Kara Vincent is the Financial Officer at Lancaster Red Rose Credit Union.