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What Types of Insurance Do You Need?

What is truly important to you in life? Is it the welfare and security of your loved ones? Is it the ability to provide for your family, even in times of uncertainty? Your response to these questions sheds light on the essential role insurance can play in our lives.

Insurance isn’t just a box to check off your to-do list; it’s a crucial risk management tool that protects your most valuable assets — your health, your home, your car, and ultimately, your family’s financial well being. To help you navigate the often-complex world of insurance, we’ll discuss some different types of insurance and how much coverage you may need.

Covering the Bases

As you determine your insurance needs, here are a handful of the most fundamental forms of coverage to account for in your financial plan. From auto and homeowner’s insurance to disability and long-term care, these can help mitigate the financial impact of unexpected life events on your family and loved ones.

Auto Insurance

If you own a car, auto insurance is a must. In addition to being a legal requirement in  most jurisdictions, the right policy can safeguard you from financial burdens that may result from an accident or theft.

How much auto insurance you need and how much is required by law are two different questions. While the required minimums vary by state, it’s often recommended that you follow a standard 100/300/100 structure. This entails $100,000 of personal injury protection, $300,000 of total accident injury protection, and $100,000 of property protection. Your individual auto insurance needs may differ based on your circumstances and driving habits.

Homeowner’s or Renter’s Insurance

Homeowner’s insurance protects what’s likely your most valuable financial asset: your home. It covers damages to the structure of your home and the personal property within it, while simultaneously providing liability coverage for accidents that happen on your property. Without sufficient coverage, you risk financial hardship from unexpected events like fires, natural disasters, or legal liability, which may jeopardize your home and financial stability.

Renter’s insurance, on the other hand, does not provide coverage for the physical building you live in. This is the responsibility of your landlord, who should have their own insurance policy for the property. Instead, renter’s insurance covers your personal belongings, liability for accidents that occur within the rented premises, and sometimes living expenses if the rented space becomes uninhabitable due to a covered event.

For homeowners, consider a policy that covers the cost of rebuilding your home at current construction costs, not its real estate value. Renters, who won’t require as much coverage, should seek a policy that covers the replacement cost of personal

Health Insurance

As healthcare expenses continue to rise, having a health insurance plan that covers a broad range of services, including hospitalization, prescription drugs, and preventive care can help shield your loved ones from potentially-burdensome medical bills. Your individual coverage needs will depend on factors like age, health status, family medical history, lifestyle choices, and those of your dependents. Balance the cost of premiums with your out-of-pocket exposure. Higher-deductible plans often have lower premiums but can leave you with high costs when you need care. At a minimum, look for a policy that protects against catastrophic health-related expenses that could jeopardize your financial stability.

Disability Insurance

Disability insurance helps you maintain your standard of living should an accident or disability render you unable to work. It replaces a portion of your income to alleviate some of the burden imposed by day-to-day expenses during challenging times for you and your family.

Disability insurance policies are broadly separated into two categories: short-term disability and long-term disability. The former provides temporary relief, usually for a period of up to six months, while the latter provides coverage for extended periods, often lasting for years or until your retirement date. The recommended coverage is usually around 60-70% of your income, although specific needs may vary based on your lifestyle, the needs of your family, and your existing financial obligations.

Life Insurance

Life insurance provides financial support to your loved ones upon your passing or incapacitation. This is particularly important if your family or other dependents rely significantly on your income. Life insurance can be used to cover outstanding debts, pay for your funeral, and even provide a living allowance for your loved ones. This support can help ease what’s bound to be a difficult transition for those you care about.

Universal life insurance provides coverage that lasts until the time of your death or incapacitation. These policies often include a cash value component that can grow over time and that you can tap into when needed. Term life insurance, by contrast, lasts for a finite period (typically between 10 and 30 years) but may entail lower premiums. For coverage, a common guideline is to carry 10-15 times your annual income, but your needs are likely to evolve over time. That’s why it’s essential to periodically review your life insurance coverage as your circumstances change.

Going a Step Further

These forms of insurance can serve as a safety net for your family in several key areas, but the list above is far from exhaustive. If you’ve already addressed the basics and are looking to add another layer of protection, these are some other options you may consider.

Supplemental Health Insurance

As the name implies, this is an addition to your primary health insurance that aims to fill gaps in your existing coverage. It can cover out-of-pocket expenses that your regular health insurance doesn’t cover, such as copayments, deductibles, and coinsurance. Some policies may also provide wage relief should an extended hospital stay or illness render you temporarily unable to work.

Long-Term Care

A long-term care policy can provide coverage for services that aren’t typically covered by regular health insurance, Medicare, or Medicaid. This includes assistance with daily activities over a prolonged period due to chronic illness, disability, or old age. It covers often-costly services such as in-home care, nursing homes, and assisted living facilities.

Umbrella Policy

This form of insurance provides additional liability coverage beyond your auto and homeowner’s insurance. It kicks in when the liability limits on these policies have been exhausted. You might consider carrying an umbrella policy if your net worth exceeds the liability limits on your car or home insurance.

Assessing Your Insurance Needs

Insurance is a risk management tool that safeguards your family’s interests and lays a secure foundation for your financial plan. To gain a comprehensive understanding of the different types of insurance and how they cater to your specific needs, consider consulting a financial advisor. They will help you understand the complexities of insurance coverage and guide you in making informed decisions. After all, the peace of mind that comes with knowing you are adequately insured is invaluable.


Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder | Senior Managing Partner

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