Insurance is a tricky business. There are more types of insurance than you’re ever likely to need, but some of them are absolutely essential, or even required by law. Here’s a look at the kinds of insurance you’ll definitely need to concern yourself with.
The insurance types almost everyone will need
Most people need the following types of insurance, as they cover the biggest potential expenses found in life and otherwise protect your earning power. While other forms of insurance can be useful or supplemental, these types of insurance are more commonly accepted as must-haves.
Health and disability insurance: Half of the country is worried that they’ll fall into bankruptcy from a health-related event, according to a recent Gallup poll. And no wonder, as the average cost for a three-day hospital stay averages around $30,000. The dollar amounts are staggering, which is why health and disability insurance are so important, whether you get them from your employer (or partner’s employer), a union, or individually—perhaps through the federal health insurance marketplace or state equivalent. Disability insurance, which also tends to be offered by your employer, covers your income if you get hurt and can’t work. Your health is your most important asset and insurance will help you preserve it.
Homeowner’s or renter’s insurance: Homeowners and renters should have some kind of property insurance that pays for or replaces their belongings in the event of a fire, burglary, weather event, or some other natural disaster. Even if you don’t have much of a value in your apartment beyond furniture, a laptop, or a phone, renter’s insurance can be cheap enough for many to justify the expense. In some cases you have to get homeowner’s insurance, as your mortgage might require it. Note, flood insurance and earthquake insurance are not always included in a regular policy, so ask your provider if they’re in yours.
Auto insurance: If you don’t drive or don’t own a vehicle, you can skip this one, but it’s included here because auto insurance is legally required in most states. You should carry enough coverage to cover the damages or injuries that you might cause (liability coverage), or to pay for damages to your own car (collision coverage), and for other events aside from accidents, like theft or vandalism (comprehensive coverage). You don’t want to wait until after an accident to find out what your policy does and doesn’t cover.
Life insurance: You need life insurance if your death will cause a financial hardship for someone else (spouse, children, or parents), as it will pay a sum of money to them when you die. Many employers offer life insurance policies, and your auto or property insurer may offer life insurance as well. What if you’re single? Consider a small term life insurance policy if you have co-signed debts or want to pay for end-of-life expenses like funerals (the average cost of which is between $8,000 - $10,000, according to Policygenius)
Before you purchase insurance, know what you have first—always check with your employer for available coverage before you pay for a policy you might be getting for free.
Other types of insurance
There many other types of insurance out there, from pet insurance, to boat insurance, to personal items insurance... the list goes on. The best way to decide whether they’re worth it is to understand exactly what risk is being covered and what the payout will be, then weigh that against the premiums you’ll have to pay.
In the case of health or life insurance, the need for risk protection is much more obvious, but for other types of insurance, the premiums will be too high and the policy won’t be worth the money. Just remember that you are paying to offload a risk of some kind. It’s up to you whether the risk is too small to pay for—but there’s nothing wrong with paying a little extra for that peace-of-mind, either.
This post was originally published in 2013 and was updated on November 2, 2020 to add more current information and update links, and to align with current Lifehacker style guidelines.