What Type of Insurance Do I Actually Need and Why?

high six figures What Type of Insurance Do I Actually Need and Why?

Insurance salespeople have always had a bad reputation, and almost all of them don’t deserve it. Like lawyers, there are plenty of jokes about shady insurance salespeople, yet their services are still integral to society. If you are new to the search for insurance, you may already be skeptical about the insurance policies that are being suggested.

Luckily, we are here to provide some information about what type of insurance you actually need and why you might need it. The irony of paying for a product and service that you hope to never have to need is not lost on us.

Insurance is much like a seat belt: you put it on ‘just in case,’ as the cost of putting it on far outweighs the risk of either getting a ticket or getting hurt in an accident. In the best circumstance, you never need to use the insurance policy that you take out. Nevertheless, having the right policy for your current financial and family situation can mean the difference between being okay or going into financial and emotional ruin. 

How do you know what specific insurance you need and how much is the right amount?

There is no one-size-fits-all approach to insurance. Celebrities are infamous for taking out strange insurance policies with Lloyds of London. Dolly Parton is reputed to have taken out a $600,000 policy on her chest, whereas Tom Jones apparently insured his chest hair for even more. Bruce Springsteen has insured his voice, and Keith Richards took out a policy on his fingers.

Although these may seem ridiculous to you, these are perfect examples of why insurance is case-specific. Moreover, everyone’s value on a particular item is different, depending on how much income they can generate from it or how much it might cost to replace.

What is the difference between an insurance broker and an insurance agent?

The easiest way of differentiating between an insurance broker and an insurance agent is by noting who they work for.

An insurance agent represents one or more specific companies and works on commission. On the other hand, an insurance broker represents you and will aim to find the best terms, conditions, and prices from multiple sources for you as their client.

Insurance agents can complete the total transaction, whereas an insurance broker will ultimately hand over the final transaction to the relevant insurer.

How do you find the right insurance agent or broker?

Being able to have open and honest conversations with your insurance agent is critical. While certainly not all insurance agents are shady, there are still a few bad apples out there. Other insurance agents might not be willing to devote the time required to analyze your specific situation or update your policies as your situation changes.

We recommend looking for the following red flags when looking for the right insurance agent:

  • Pressured, aggressive, or pushy sales techniques
  • Cold calling
  • Direct payments
  • Questionably low premiums
  • A lack of web presence, address, or credentials
  • Suggestions of overvaluing items
  • Recommending that you lie on the application
  • Adding coverage, you didn’t ask for or inflating premiums
  • Renewing policies without asking about any changes in your situation or assets
  • Huge deductibles

When seeking out a new insurance broker or agent, think about how you would search for any other new service. If you wanted a new hairdresser, for example, you would likely ask your friends with a similar taste for their recommendations. You would then look online at their reviews and ultimately try them out and see how you click.

The same goes for finding the right person to sell you insurance.

What insurance is considered essential?

There are core types of insurance that almost everyone should have to protect their assets and their family’s future, which include:

Health Insurance

Health insurance may be difficult to justify when you are young and healthy. However, sudden illnesses and accidents can easily bankrupt you or your entire family. The Affordable Care Act means that you will not be fined for a lack of health insurance.

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Nevertheless, serious illnesses, chronic illnesses, and accidents are never expected; but you can plan for them. Health insurance should be considered a necessity for you and all of your loved ones. High-deductible plans are generally cheaper because you won’t be able to claim back before reaching a particular limit, but they can still save you from potential bankruptcy.

Disability Insurance

Would your family be financially stable if you were no longer able to work? If you got in an accident, your health insurance can patch you up, but what happens when you get sent home? 

An employer often provides disability insurance, but it is best to double-check that this is the case and also what instances you may or may not be covered. Insurance payouts can also take months or even years. If a court case is involved, then you may not see any money until the conclusion.

As such, it is best to ensure that your family can pay the bills without your income.

Life Insurance

Not everyone needs life insurance. Moreover, your life insurance needs will change alongside your situation. Consider what would happen if you suddenly died. Would your spouse be able to pay all of the bills and the mortgage on their salary alone? Would their child care expenses increase? Perhaps they would need to move closer to extended family.

Planning for your own demise is not a task that anyone relishes, but it is the responsible thing to do to ensure your family’s well-being.

Homeowner’s Insurance

If you have a mortgage on your home, your bank will likely insist that you take out homeowner’s insurance. As your home is typically your biggest asset, it is instrumental that you protect it and the contents from natural disasters, burglary, fire, or extreme weather.

Depending on where you live, it can be advisable to take out additional coverage for hurricanes, flooding, or earthquakes.

In the event that your home is not inhabitable, homeowner’s insurance will generally pay for alternative housing. It will be best to get home insurance quotes for your particular situation. If you rent, then renter’s insurance is likely needed to cover your own possessions as the landlord’s insurance will often only cover their asset, which is the house itself.

Auto Insurance

If you need auto insurance, it is best to annually check your liability coverage, collision coverage, and comprehensive coverage. How much you should have of each will depend on your state’s regulations, your vehicle’s replacement value, and whether your vehicle is used for commercial purposes.

It is also worth checking the fine print to ensure that the policy will cover the expense of a rental car in the interim after an accident. 

Some insurance may be required by law in your state, but many other insurance policies should still be considered essential. Balancing what type of insurance to get, the policy amount, the deductible, and the fine print can all be incredibly challenging.

There are various factors at play, both for what you need and what you need to pay. We recommend speaking to a trusted insurance broker to fine-tune policies for your current situation.