Building wealth becomes infinitely easier when you have the discipline to save and a solid investment plan that’s backed up by research. However, you also have to protect your assets as they multiply over time, which you can do with the right insurance products.
Unfortunately, some types of insurance can seem overly complicated, and it doesn’t help when pushy insurance agents get involved. For this reason and others, it’s easy to skip buying insurance that protects the wealth you have worked hard to build.
7 Types of Insurance You Should Absolutely Have
Some people are already aware they’re dramatically underinsured, in which case they need to stop burying their heads in the sand.
If you truly want to become wealthy and stay that way, you need to have protection from every angle. With that in mind the following types of insurance are ones most people shouldn’t go without.
Homeowners or Renters Insurance
Homeowners insurance is a must-have if you have a mortgage on your property, but you’ll want to have it either way. Not only does homeowners coverage protect you if your home is damaged by vandalism, fire, and other hazards, but homeowners insurance also comes with liability coverage that can protect against losses if someone is hurt on your property — or if you or a family member cause harm or damage to someone else. When you purchase homeowners insurance, you can also buy additional coverage for events like earthquakes or floods.
Renter’s insurance is similar because it protects your personal property like homeowners insurance, yet this type of coverage doesn’t protect the dwelling itself.
Keep in mind that, if you go without this important coverage, you’ll be left to fend for yourself in the event of a fire or another covered disaster. This means having to replace your property and everything else you own if you’re a homeowner, or having to replace all your damaged personal property if you’re a renter.
You are legally required to have a minimum level of auto insurance coverage, which can vary depending on where you live. In the state of California, for example, you are required to carry at least $15,000 per person and $30,000 per accident in bodily injury liability coverage, $5,000 in property damage liability coverage, $15,000 per person or $30,000 per accident in uninsured motorist bodily injust coverage, and $3,500 minimum in uninsured motorist property damage coverage.
Since state minimum coverage limits tend to be low, you’ll likely want to purchase auto insurance coverage with higher coverage limits that can protect you against financial losses if you’re hurt in an accident or you cause someone else bodily injury or property damage. You can also pay more for comprehensive coverage that can help repair your car after an accident or vandalism takes place. Other important types of auto insurance protection to consider include personal injury protection (PIP), rental reimbursement coverage, new car replacement coverage, and gap coverage.
While auto insurance and homeowners insurance comes with a certain level of liability coverage, most people with ample assets choose to buy more liability protection via an umbrella insurance policy. This type of insurance can help pay for judgements or legal fees beyond what your other insurance policies offer, yet it only kicks in after other policies you have are exhausted.
Either way, the Insurance Information Institute (III) reports that you can usually buy up to $1 million in umbrella liability coverage for $150 to $300 per year. If you have assets to protect or just want more peace of mind as you continue building wealth, this is a type of insurance you shouldn’t go without.
If you don’t receive health insurance through an employer, you should plan on purchasing a health insurance policy to protect yourself and your family. Fortunately, the Patient Protection and Affordable Care Act (commonly referred to as the ACA or Obamacare) made it possible for anyone to purchase health insurance in their state regardless of pre-existing conditions.
You may also receive subsidies that make health insurance more affordable if you earn less than 400% of the Federal Poverty Limit (FPL). You can learn more about buying health insurance independently at Healthcare.gov.
What would happen to your family if you suddenly passed away? Would they have the resources to get by — and to pay off your debts — without your income?
While some people use life insurance as an “investment” of sorts, or to pass on tax-free wealth to their heirs, the main purpose of this type of coverage is to replace lost income and pay for final expenses.
If you want to purchase basic life insurance coverage that can help your family get by if you die before your time, term life insurance coverage is easily the most affordable type of coverage. This type of life insurance is more affordable because it only lasts for a specific term, usually 10 to 30 years. Once the term of the policy is over, you no longer qualify for a death benefit.
By contrast, there are plenty of types of permanent life insurance coverage that offer a death benefit for your entire life, albeit with much higher premiums.
While there are arguments to be made for buying most types of life insurance, you should make sure you have some type of coverage in place before it’s too late.
Disability insurance is another type of insurance you probably shouldn’t go without, and this is especially true during your working years. After all, disability insurance can help replace a portion of your income for years (or even decades) if you become unable to work.
Keep in mind that several types of disability insurance exist. For example:
- Short-term disability insurance comes with shorter waiting period of up to 14 days, and the benefits are usually good for up to two years
- Long-term disability insurance may come with a waiting period of a few weeks up to a few months, yet benefits can last a few years or the remainder of your life
There are plenty of nuances to disability insurance than what we cover here, and you should also know you may get some sort of short-term disability coverage through your employer. Either way, you should consider making sure you have disability insurance if your family relies on your income to get by.
Identity Theft Protection
Finally, don’t forget about the impacts identity theft could have on your life and your finances. After all, statistics show that identity fraud victims usually wind up bearing some of the financial burden of identity fraud. In fact, a 2019 Identity Fraud Study from Javelin Strategy & Research showed that 3.3 million identity theft victims wound up taking financial losses due to fraud in 2018, and their out-of-pocket fraud costs doubled from 2016 to 2018.
Fortunately, plenty of identity theft protection companies offer plans that can help monitor your accounts for fraud or suspicious activity. The best options also offer up to $1 million in identity theft insurance, which can help cover losses caused by fraud, legal fees, and more.
If you buy a “Platinum” plan from ID Watchdog, for example, you get up to $1 million in identity theft insurance and up to $1 million in coverage for stolen funds from a 401(k) or Health Savings Account (HSA).
The Bottom Line
Saving for retirement and growing wealth is about more than investing smartly — it’s about protecting your assets through each stage of the wealth-building process. Insurance coverage can provide the protection you need against events that are usually far beyond your scope of control, but only if you make sure you’re protected before a crisis hits.