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Family Finances

7 Types of Insurance Policies That Help Protect Your Finances

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    • FNBO

      Jul 14 2023

7 Types of Insurance Policies That Help Protect Your Finances

It’s simply a fact of life that unexpected and unfortunate things happen that could be costly and have a dire impact on your financial well-being. Fortunately, there are several types of insurance policies available to help protect your finances should you need them.

Auto Insurance

A recent study reports that 77% of US motorists have been in at least one accident in their lifetime and for every 1000 miles you drive, your chances of getting into a car accident are 1 in 366. Combine those odds with the fact that the average settlement is $16,700 for a non-injury accident and $29,700 for an injury accident, and you can see how auto insurance is an important tool to help protect your finances.

Carrying at least some type of auto insurance is mandatory in nearly every state, so if you drive, you likely already have an auto insurance policy. However, now is a great time to review your current policy with your insurance agent to determine which type of policy would be most beneficial for you.

Homeowners Insurance

According to the Insurance Information Institute, 1 out of 20 insured homes files a homeowners insurance claim each year and the average claim can range from $820 to $77,340 or more.

Your home (or an apartment that you own) is likely one of your largest assets and homeowners insurance is designed to provide you with coverage to help repair or rebuild your home after damage from smoke, fire, theft, vandalism, or damage from a covered natural event such a wind, hail, or lightening. In addition to the physical structure of your home, standard policies typically cover other property within your home such as heating and cooling systems, furniture, appliances, and personal belongings. If you rent an apartment, you can purchase renter’s insurance to cover damage or theft to your person property.

There are various types of homeownership policies available so it’s important you work with your insurance agent to determine the best one for your situation.

Umbrella Insurance

Auto and homeowner’s insurance only covers a mishap up to a certain amount. If you or someone in your household is held liable for damage to another person or their property, you would be responsible for paying the damages above the liability limits of your insurance policies. Depending on the extent of the damages owed, this could lead you to financial ruin. That’s why it’s so important to consider an Umbrella policy. Umbrella policies provide extra coverage above what your base policies cover. These policies are usually issued in $1 million increments and cost an average of $100 to $450 per year per $1 million in coverage. They cover things like injury to another person, damage to another person’s property, defamation, and landlord liability.

It’s important to note umbrella policies require certain coverage minimums on your homeowners and auto policies. If you are under the minimum, then you may be liable for the gap in coverage. For example, if your auto policy covers $300,000 total for an accident, but your umbrella policy requires $500,000 in total coverage for an accident, then in the event of a claim exceeding $300,000, you would be liable for the $200,000 gap in coverage before the umbrella coverage kicks in.

If any of the points below apply to you, you should consider working with your agent to take out an umbrella policy.

  • You have a new or inexperienced driver in your household.
    New drivers are at increased risk of accidents that potentially cause harm to others. An umbrella policy can protect your financial well-being in the event your new driver is held liable for significant damages or injury.
  • You own property.
    Whether it’s your primary residence or an investment property, you could be held liable for injury to another person that takes place on your property. The more property you own, the more risk you assume so an umbrella policy should be considered.
  • You have significant net worth.
    The more you have, the more you stand to lose. Umbrella policies are relatively inexpensive and could save your financial assets from being depleted in the event you are held liable for a substantial amount of money. As general rule of thumb, your umbrella coverage should equal your net worth.
  • You own a business.
    Business owners should make sure they have enough business coverage in the event an employee gets injured or sues you. If you don’t have ample coverage, an umbrella policy should be considered.
  • You’re a landlord.
    If you’re a landlord, you could be held liable to your tenants for damages that occur on your property such as injury from falls.
  • You own certain dog breeds.
    Animals can be unpredictable, even man’s best friend. Umbrella policies can help protect your assets in the event Fido causes injury to someone outside your household.
  • You participate in high-risk activities.
    If you enjoy things like hunting, boating, or other recreational activities where you could potentially cause injury to others, an umbrella policy is likely a good idea for you.
  • You have a pool, trampoline or other items that could easily cause injury.
    If an injury happens when using one of these items, you could be held liable even if they willingly took part in the activity.

Life Insurance

As the saying goes, death and taxes are the only two things guaranteed in life. Life insurance enables you to prepare for the inevitable by providing you and your survivors with the peace of mind knowing that they will be financially cared for upon your death.  It is most often used as way to replace your income so that your surviving beneficiaries can continue paying the bills and live the lifestyle they are accustomed to.

If you have significant financial assets, estate taxes could eat up a large chunk of your loved ones’ inheritance when you pass away. Life insurance can be a valuable tool to help pay these costly estate taxes to preserve the wealth you built throughout your life. Additionally, life insurance can be used to help or build or maintain wealth across generations. Be sure to consult with your estate attorney and/or insurance agent to determine the types of life insurance that is best for you.

Health Insurance

It’s no secret that healthcare is expensive. The average hospital stay costs $13,262 and if surgery is involved, the costs could reach $100,000 or more. If you don’t have health insurance, you could be held liable to pay these expenses out of your pocket which could have a significant impact on your finances. If you have a spouse and dependents in your household, you further increase your risk of high-cost health care events. That’s why it’s important to carry health insurance to help protect your assets in the event you or a loved one become ill.

Disability Insurance

Disability happens to people more often than you might think. Studies show that 5.6% of Americans in the workforce experience a short-term disability each year and 25% of today’s 20-year-olds will be out of work for at least a year because of disability before they retire. Having disability insurance provides partial income so you can continue to pay your bills while you are too sick or injured to continue to work. This helps ensure that you don’t have to dig into the savings you’ve work so hard to build.

Long-Term Care Insurance

According to medicare.gov, long-term care is a range of services and support for your personal care needs. Most long-term care isn't medical care. Instead, it helps with basic personal tasks of everyday life like dressing, bathing, and using the bathroom. It may also include home-delivered meals, adult day health care, and other services.

It is estimated that 70% of people aged 65 and older will need some type of long-term care in their lifetime and 3 years is the average amount of time they will receive care for. If an assisted living facility is required, the cost of care could reach $50,000 to $100,000 per year or more.

Medicare does not cover long-term care, but you can buy private long-term care insurance to help prevent having to use your financial assets to cover the high costs. The premiums are typically higher than other types of insurance policies but could prove to be more than worth it in the long run.

Life is full of risks but having the right insurance policies could help protect your assets if an unexpected, unfortunate, and costly event happens to you. If you have questions about the types of insurance coverage that would be best for your financial situation, contact your insurance agent today.

This material is provided for informational purposes only. It does not constitute legal, tax, accounting, or other professional advice. It is subject to change without notice. Information contained herein from third-parties was obtained from sources considered to be reliable. However, its accuracy, completeness, or reliability is not guaranteed. Linkage to any third-party content is for informational purposes only and in no way implies an endorsement or affiliation of any kind with any third-party. FNBO bears no responsibility for any third-party sites or content. This material was created as of the date indicated and reflects the author’s views as of such date. Neither the publisher nor any other party assumes liability for any loss or damage due to reliance on this material.