My husband and I are on that step of the parenting journey where we have to explain realities to our daughter like 401k plans, insurance, and taxes. Insurance is a really tricky one. Why pay hundreds of dollars for something you may not need? Because life happens and we have to protect ourselves from financial ruin when it does. Here are a couple of questions we’ve answered.
What Even IS Insurance?
My grandmother used to say, “An ounce of prevention is worth a pound of cure.” Insurance is the ounce of prevention. We buy it before we need it, which is kind of backwards, right? We don’t buy dog food before we adopt a dog, but we do buy homeowners insurance before our house burns down because insurance companies won’t pay for a fire we’ve already had. It’s also weird in that insurance companies decide whether or not they want to insure us and how much they will charge us to do so. For example, when buying car insurance, if we have a crash on our record, the insurance company can charge us more than they charge someone who has never had an accident. Here is a comprehensive article about insurance.
What Kind of Insurance do I Really Need?
There are so many options. We can practically insure everything we own if we want to. Some insurance we are required to purchase. For example, it’s illegal to drive without car insurance. Some is optional; like pet insurance. So what are the essential types of insurance we should buy? It depends on our situations and who relies on our incomes. We work hard for our money and want to keep as much of it as possible. The following are common types of insurance and resources you can use to decide what’s best for your situation.
Health – Premiums, deductibles, and copays, oh my! There are so many variables associated with health insurance, there’s not enough room to go into them in this space. Here is a good article about them.
Dental – It depends on whether or not your employer provides it. Here is a good explanation.
Disability – According to the CDC, 61 million adults in America have a disability. You need long-term disability insurance. You can use your emergency fund for short term (lasting 3-6 months) disabilities, but here is a resource to help you decide.
Life – Should you choose term or whole life? Depends on what you want the insurance to pay for after you’re gone. Here is a good explanation.
Pet – We opt to use our emergency fund or credit card instead, but here is a resource for you.
Homeowners or Renters – Covers property damage (e.g., you get robbed) and liability (e.g., someone gets hurt on your property). Here is a resource for homeowners, and here is one for renters.
Flood – In most cases, yes. Neither homeowners nor renters insurance cover flooding. Here is an article about it.
Auto – It’s the law. Here is an article to help you decide what type is best for you.
Umbrella – Are you at risk of getting sued? Then yes. More details here.
Long-term Care – Probably not. Here is an explanation.
Identity Theft – Probably not. Here is why.
Have you had a circumstance where you were really glad you were insured? Please share about it in the comments section.