My husband and I are planners. We have budget meetings every month and set aside money for everything from vacations to vehicle registration. However, there are some expenses we simply haven’t been able to anticipate.
When a large limb of an oak tree snapped and severed the corner of our roof, we were not entirely prepared for the repair costs. When I got rear-ended on my way home from work, I certainly didn’t see that hefty orange Jeep coming. The reality is we can’t know everything that’s ahead of us, and this is why insurance exists.
How would a sudden car accident affect your finances? What if your three-year-old fell off a swing and broke their arm? Could you afford an emergency trip to the vet if your dog ate an entire batch of double chocolate brownies? Insurance makes you adaptable. It’s a way to prepare yourself for the circumstances and costs you can’t adequately save for—because you don’t know what they are and when they’ll arrive.
What is insurance?
When you buy insurance, you’re essentially “purchasing” protection and peace of mind.
Insurance companies provide financial support for you, the policyholder, when certain unexpected financial losses occur. There are many different types of insurance, covering a broad range of circumstances, such as a car accident, a broken arm, a missed flight, a fire in your home, emergency surgery for your pet, and more.
In situations when our lives become wrecked and disrupted, insurance steps in to help clean up the mess. Luckily, insurance is even easier to find than ever with Policygenius. Through their insurance marketplace, you can compare quotes from top insurers and even purchase a new policy.
How does insurance work?
While not every type of insurance operates in the same way, there are a few important terms that can help you understand how insurance works.
First of all, what you are really purchasing when you “buy insurance” is a policy. A policy is a written contract that explains the details of your relationship with an insurance company, such as the responsibilities of that company, the terms of your coverage, policy limits, and more. Consequently, you—the insured individual or group—are the policyholder, and your insurance company is the insurer. In exchange for coverage, you pay the insurer a premium, or rate, typically on a monthly basis.
The way insurance works when you need it can vary based on the type of insurance you have. To receive benefits from your insurer, you will often need to file a claim. A claim is a formal request a policyholder makes to an insurance company for coverage, following circumstances like a car accident or a house fire. However, for many types of insurance, there is a certain amount you are responsible for covering before your insurance company chips in; this is called your deductible.
Nevertheless, insurance policies differ in a variety of ways. Take a look at the 10 types of insurance listed below to learn about what kinds of expenses and situations can be covered by insurance.
1. Life insurance
Are you married? Do you have children? Do you own property? If you answered, “yes,” to any of these questions, you may want to consider life insurance.
Life insurance ensures that the people and property you care for will be financially assisted in the event of your death. While it’s certainly not a pleasant topic, life insurance is absolutely necessary for parents and spouses who want to protect their loved ones from avoidable financial burdens.
How does life insurance work?
In the event of your death, your life insurance policy will pay a sum of cash (often tax-free) called the death benefit to the beneficiaries named in your policy, often spouses and children. Your beneficiaries can then use the cash to compensate for the loss of income incurred as a result of your death—maintaining mortgage payments, affording child care, saving for college tuition, etc. Beneficiaries can also use the death benefit to pay for a funeral and other end-of-life expenses.
Types of life insurance
There are two types of life insurance: term and whole.
Term life insurance, also called pure life insurance, can protect your loved ones should you die within a specified period of time. These policies typically last 10-30 years, after which you can choose to renew the policy, convert it to whole life insurance, or end it altogether. On the other hand, whole life insurance, also referred to as permanent life insurance, is available for the entirety of your life.
Many financial experts agree that term life insurance is the ideal choice for most individuals. It’s easy, affordable, and provides a safety net for your family as you build wealth.
How much does life insurance cost?
As your age increases, so will the price of your premium. This said, for most Millennials, the best time to find an affordable life insurance policy is now.
A 37-year-old might pay roughly $26 per month for a 20-year term life insurance policy with a $500,000 death benefit. A 30-year-old interested in a whole life insurance policy (paid up to age 99) might pay $100 each month. However, the cost of your policy will also be impacted by your health, age, gender, and even lifestyle.
Many insurance companies will require higher premiums for those in poor health or individuals who engage in risky hobbies, like skydiving. Fortunately, emerging insurance company Health IQ has taken an alternative approach to this norm and actually rewards policyholders who maintain healthier lifestyles—such as runners, cyclists, and even vegetarians—with more affordable premiums.
2. Health insurance
Health insurance is one of the most common and most important types of coverage.
It covers all, or a portion, of your medical expenses, helping you afford anything from an annual checkup to emergency surgery. It is also often included in employer benefit packages, which results in lower costs for the insured individual.
How does health insurance work?
If the topic of health insurance is overwhelming to you, you’re not alone. In fact, among the many types of insurance outlined in this article, health insurance is probably the most complex.
For many basic hospital visits, all you have to cover is the copay (often less than $100). This is a fixed amount you contribute towards a specific service, such as having your blood drawn or getting an annual physical. However, not all visits to the hospital are routine, and when those trips occur your expenses will generally go as follows.
You’ll start by paying a deductible. Then, once that deductible is met, your health insurance covers some, but not all, of your medical expenses. In many health insurance plans, the insured pays 20% of the medical costs, and the insurer pays 80%. This is referred to as coinsurance. Finally, there is a cap on the amount you’ll pay for health care, called the out-of-pocket maximum. This limit is set by the federal government, although your plan may have its own lower limit.
Types of health insurance
Health insurance plans vary in what and how much they cover, but the doctors and hospitals also have a vital role to play, because not all will work with your insurance company.
A healthcare provider can choose whether or not they want to accept the discounted rates offered by your insurance company. If they choose to adhere to those rates, they become an in-network provider. If they don’t, they’re out-of-network.
This is an important distinction to understand because the amount you pay for medical services will be much greater for those that are out-of-network. In fact, some insurance companies, Exclusive Provider Organizations (EPOs), and Health Maintenance Organizations (HMO) will only cover healthcare costs from in-network providers, except in the case of an emergency. HMOs are generally more affordable (and more popular) than EPOs, but also typically work with a smaller network.
However, just because a doctor declines to accept your insurance does not necessarily mean you’ll have to foot the bill entirely. A Preferred Provider Organization (PPO) is the most common type of insurance plan, and it will cover some costs for out-of-network providers, but not as much as those that are in-network. You can also work with out-of-network hospitals and doctors in a Point of Service (POS) plan, but you usually need a referral from your primary care physician.
How much does health insurance cost?
According to eHealth, the average premium for an individual health insurance plan is $440, and, for a family, it’s around $1,100.
However, the cost of your health insurance will depend on the type of plan you choose, as well as a number of other factors, including where you work and live. Deductibles, for instance, can range from $500 to $1,500 for individuals and $1,000 to $3,000 for families each year. However, health insurance plans with higher deductibles typically have lower premiums, while those with low deductibles often have high premiums.
Consider resources like HealthCare.gov to search and compare health insurance plans from top insurance companies.
3. Homeowners/renters insurance
Homeowners insurance is another essential type of insurance. In fact, it’s generally required by your mortgage company.
Homeowners insurance is a type of property insurance that protects you and your property from damages and losses. It can reimburse you for stolen belongings, cover repair costs following a fire, and even pay for injuries people sustain on your property.
Renters insurance policies are often quite similar to those for home insurance. They cover damages and losses to your personal belongings, but typically exclude coverage for the physical dwelling—since you don’t own it.
What does homeowners/renters insurance cover?
Most home insurance policies provide six main types of coverage.
- Coverage for your physical home, your “dwelling.”
- Coverage for other structures on your property.
- Coverage for your personal belongings, including the contents within your home or other structures on your property.
- Coverage for temporary living expenses, should you need to relocate while your home is being repaired (this is called loss-of-use coverage).
- Coverage for legal and medical expenses following an accident that causes bodily injury or property damage, whether on your own property or someone else’s (when you are held liable).
- Coverage for medical bills for injuries another person sustained on your property (regardless of who is at fault).
Renters insurance policies often include these same forms of coverage, except for the dwelling and other structures.
Despite this broad list, home insurance policies won’t pay for everything. Floods and earthquakes, for example, are not generally covered by standard home insurance policies. Instead, you may want to purchase a separate flood or earthquake insurance policy.
How much does homeowners/renters insurance cost?
Home insurance premiums can vary dramatically, based on the type of coverage you want, the state in which you live, your credit score, marital status, and more. However, on average, homeowners insurance premiums hover around $1,200 per year—or, roughly $100 per month. Renters insurance, on the other hand, is one of the cheapest forms of insurance available, costing an average of just $15 per month.
4. Mortgage insurance
Unlike the forms of insurance mentioned thus far, mortgage insurance is really designed to mitigate risks for your mortgage lender—not you. Should you, the borrower, suddenly pass away or default on your payment, mortgage insurance will help protect your lender from the loss.
Types of mortgage insurance
Most conventional loan lenders (offering loans that are not backed by the federal government) require borrowers to buy private mortgage insurance (PMI) if their down payment is less than 20% of the sales price of the home. Your lender will often connect with a private company to set up the insurance for you, and you typically pay a monthly premium for the coverage.
However, if you receive a Federal Housing Administration (FHA) loan, you will need a specific type of mortgage insurance (MIP), which includes an upfront premium and an annual premium (paid monthly). FHA loans are designed for borrowers with a more moderate income and lower credit scores, so the mortgage insurance is typically higher than what you would pay for private insurance. Additionally, even if you make a down payment that is more than 20% of the home sales price, mortgage insurance is still required for FHA loans.
How much does mortgage insurance cost?
On average, the annual premium for private mortgage insurance (PMI) is typically around 0.55% to 2.25% of your original loan amount each year. In other words, for a $200,000 mortgage, you could pay between $91 and $375 each month for your insurance.
However, FHA mortgage insurance (MIP) works a little differently and is generally more expensive. In addition to your annual premium, typically 0.45% to 1.05% of your loan amount, you also pay an upfront mortgage insurance premium, which is 1.75% of the loan amount. However, this premium is typically financed into your loan. As a result, your overall loan will increase by 1.75%, which consequently adds to your monthly premiums as well.
5. Auto insurance
In most states, a basic auto insurance policy is not only recommended, it is required. Auto insurance can cover a variety of events—from collisions to theft—but, in many states, your policy must provide coverage for property, liability, and medical expenses, at least.
Types of auto insurance
There are six main types of auto insurance:
- Bodily injury liability – Covers any medical expenses or lost wages for an injured individual, as a result of an accident where the policyholder is held liable.
- Medical payments or personal injury protection (PIP) – Covers medical expenses for injuries suffered by the driver and passengers of the policyholder’s car. It can also include compensation for lost wages and even funeral costs.
- Property damage liability – Covers any damage the policyholder (or someone driving the car with their permission) might cause to another individual’s car or property, including telephone poles, fences, and more.
- Collision – Covers any damage to the policyholder’s car, as a result of a collision with another vehicle or object, even if the policyholder is at fault.
- Comprehensive – Covers damages caused by something other than an accident, such as a tree falling on your car or a thief breaking your window.
- Uninsured and underinsured motorist coverage – Covers accidents caused by an individual who does not have auto insurance or does not have sufficient insurance to cover damages.
How much does auto insurance cost?
The cost of auto insurance premiums depends on several factors—including your driving history, your car’s make and model, your age, your location, and more. Additionally, since car insurance policies are quite customizable, premiums will vary based on what types of coverage you select.
Fortunately, there are multiple ways to save money on auto insurance. For instance, companies like Liberty Mutual will reward policyholders for driving safely, by monitoring their driving habits and behaviors using their RightTrack app and a small device placed on the windshield of the car.
6. Disability insurance
Disability insurance acts as a safety net for you and your income if you were ever unable to work for a long period of time due to an illness or injury. Most people can get disability insurance through their employer for a few months, but there are also private insurers that can provide policies that last years.
Types of disability insurance
There are two types of disability insurance: short-term and long-term.
Short-term disability insurance policies pay a portion of a worker’s salary if they are unable to work for a period of three to six months. Long-term insurance generally pays a portion of their salary if they can’t work for more than six months. Short-term disability insurance is often easy to receive through your employer, but, if you want long-term disability insurance, private insurers can provide more widespread and affordable options.
Additionally, disability insurance policies are either “own occupation” or “any occupation.” “Own occupation” simply means that your illness or injury prevents you from continuing on with your current job. “Any occupation,” however, is much broader and means you are unable to work any job. This second type of policy is generally cheaper, but it’s also much more difficult to claim benefits.
How much does disability insurance cost?
Disability insurance, whether long- or short-term, generally costs 1% to 3% of your annual salary. However, as with many other insurance policies, your premium is impacted by your age, your health, the extent and length of your coverage, and more.
Fortunately, disability insurance providers like Breeze work hard to simplify the topic. In fact, you can receive a personalized disability insurance quote from Breeze “in seconds.” (Sidenote: I tested this claim for myself, and, in less than a minute, Breeze quoted three different policy options for me, at $14, $23, and $38 monthly).
7. Long-term care insurance
First of all, long-term care insurance is not the same as long-term disability insurance (in case I wasn’t the only one confused by similar terminology).
Long-term care insurance is typically purchased by individuals age 65 and older, who may require long-term care at some point in their future, but it is also available for young people who might require care as a result of an accident or illness. It covers expenses associated with an assisted living facility, a nursing home, and even an in-home caretaker.
What does long-term care insurance cover?
Long-term care insurance can provide coverage for a variety of services, both in and out of the home. It can cover the costs of an assisted living facility or a nursing home, as well as in-home care. Additionally, long-term care insurance can also provide coverage for more specific services, such as speech therapy, as well as assistance for basic tasks, such as getting dressed.
How much does long-term care insurance cost?
According to the industry research firm, LifePlans, premiums for long-term care policies average around $2,700 a year. However, the cost of your policy will also depend on how much coverage you need per day and how many years you will need it.
While you’re likely not yet 65, it’s important to anticipate these kinds of expenses, so you can prepare appropriately and even save money. In fact, many long-term care insurance policies are cheaper if you buy them earlier in life, so experts recommend you begin searching for a policy in your 50s.
8. Business insurance
If you’re a small business owner, this section is for you.
Business insurance refers to a variety of types of insurance, all designed to protect your company from potential property damage, lawsuits, theft, and more. It helps you save money when unplanned issues occur and manage the various risks associated with owning a business.
Types of business insurance
There are numerous different types of businesses across America, so business insurance policies vary to cater to each unique company. However, many businesses start with a Business Owner’s Policy (BOP), which combines the most necessary and most basic forms of insurance needed for small businesses—including commercial property insurance and general liability coverage.
As your company grows over time, you can add other forms of insurance to your BOP and customize your policy to meet your company’s needs. If you begin hiring employees, look into workers’ compensation. If you decide to purchase vehicles to expand the reach of your business, commercial auto insurance may be a necessary next step. If your company sells products, product liability insurance will be imperative.
How much does business insurance cost?
Since the type of insurance you’ll need for your business varies based on the size of your company, the industry, the number of employees, and more, costs for business insurance policies can fluctuate considerably. Many small business owners pay anywhere from $500 to $3,500 per year for their insurance policy, but the average cost of business insurance lands near $1,000 annually.
9. Pet insurance
During the course of your pet’s life, you will likely face at least one emergency vet bill of more than $2,000, says Dr. Louise Murray, vice-president of the ASPCA’s Bergh Memorial Animal Hospital, in New York City. Unfortunately, many Americans—Millennials especially—aren’t prepared for such a substantial surprise cost.
Pet insurance can help protect you from the financial, and emotional, strains you might encounter if your pet suffers an accident, develops an illness or chronic condition, requires prescription medication, and more.
What does pet insurance cover?
Most pet insurance policies include treatment for accidents, illnesses, and diseases, as well as costs for surgeries, hospitalization, diagnostic testing, and more.
Companies like Lemonade Pet Insurance offer policies that can pay for diagnostics like x-rays and labwork, any procedures your pet may need, as well as additional coverage that covers wellness exams, heartworm and fecal testing, vaccines, and more. And Lemonade starts at just $10/month!
How much does pet insurance cost?
According to the North American Pet Health Insurance Association, the average cost of pet insurance for dogs is $46 per month, while cats cost $29 per month. However, the price of your pet insurance depends on several factors, including your pet’s age, breed, and gender. Embrace Pet Insurance offers affordable policies for dogs, ranging from about $30-$40 per month. For cat insurance, the deal is even sweeter, averaging around $15-$20 per month.
10. Travel insurance
By now, you can probably guess what travel insurance covers.
Travel insurance provides protection for expenses and losses associated with travel, such as damaged luggage, a canceled flight, or a medical emergency during your trip. Many companies that offer travel packages, like airlines and cruise lines, will also give you the option to purchase travel insurance.
What does travel insurance cover?
The most common types of travel insurance include coverage for lost or damaged luggage and trip cancellation. However, it can also cover delayed travel or luggage, as well as medical expenses, accidents, and even death (paying benefits to the policyholder’s beneficiaries). You might also be able to purchase insurance options like identity theft protection, rental car coverage, and more.
How much does travel insurance cost?
Travel insurance plans generally cost between 4% and 10% of your total trip, though there are plenty of plans that fall below or above this range. The price is based on several factors, but the most important will typically be the total trip cost, the length of the trip, and the number and ages of those traveling.
At this stage of our lives, many of us are only beginning to build wealth. As a result, you may not have the luxury of adding multiple insurance premiums to your already strained budgets. Nevertheless, sometimes an emergency fund isn’t enough.
It may not be the sexiest topic, but insurance is absolutely an important and necessary tool to maintain financial health. You may not need to research long-term care insurance for a couple of decades, but perhaps you work with heavy machinery and could benefit from a long-term disability insurance policy. You might still be single with no kids, making life insurance a less urgent priority, but maybe you have a beloved puppy and should consider a pet insurance policy.
There are many different kinds of insurance (far more than what’s listed above), and it can be challenging to filter through the options and choose what’s right for you. Don’t be afraid to shop around and compare quotes, using resources like Policygenius. Read the fine print to make sure you understand your coverage fully. And, finally, remember insurance exists to provide protection and peace of mind. It can offer security for your finances, your family, and your future when unexpected events occur, but it can also free you to live more fully today.