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8 Types of Insurance You Can’t Go Without

Don’t let confusing insurance jargon keep you from getting the right coverage. We’ll break down the eight types of insurance you can’t go without so you can make the best choices for you and your family.

Types of Insurance Coverage You Need

  1. Auto insurance
  2. Health insurance
  3. Life insurance
  4. Homeowners or renters insurance
  5. Long-term disability insurance
  6. Long-term care insurance
  7. Identity theft protection
  8. Umbrella policy

Do You Have the Right Insurance?

Take the coverage checkup to find out what insurance to add, tweak or drop based on your individual needs.

1. Auto Insurance

These are the three big types of auto insurance you need:

  • Collision: If you’re at fault in a car accident, this pays for damages to your car.
  • Comprehensive: This covers damage to your car unrelated to wrecks.
  • Liability: If you’re at fault in a car accident, this covers things related to the other guy in the wreck. You need at least $500,000 in liability protection.

Other protection to consider adding to your policy (if available):

  • Personal injury protection (PIP): This covers medical bills and lost wages caused by car accidents.
  • Medical payments coverage (MedPay): This is a weaker version of PIP—and only worth getting if PIP isn’t available in your state.
  • Uninsured or underinsured motorist coverage: This protects your car if you have a wreck with someone who’s uninsured or underinsured.

2. Health Insurance

Health insurance is necessary (even when it’s costly). Take it from Shannon B., a member of the Ramsey Baby Steps Community on Facebook. Her father’s unexpected five-day hospital bill was a whopping $100,000. Whoa! Luckily, he had good health insurance, so he only wound up paying $800.

 Tips to Make Health Insurance More Affordable

  • Use an employer-sponsored plan.
  • Get a high-deductible policy to lower your premium (and get access to a Health Savings Account).
  • Take advantage of discounts your insurance company offers.

3. Life Insurance

Life insurance has one job: to replace your income if you die. It’s that simple.

  • Stay away from whole life (aka “cash value”) insurance. It’s an overpriced rip-off that combines insurance with investing and gives you a terrible return rate.
  • Only take out term life insurance. It simply provides a payout if you die while the policy is active. No gimmicks.

Why Term Life Insurance

  • They’re active for a set term (usually 10–20 years) and you only need life insurance while someone relies on your income—like kids or a spouse.
  • In those 10–20 years, you can work hard to get out of debt and pay off your house early.
  • You can build wealth through investing in good growth stock mutual funds.
  • You can work toward becoming self-insured—meaning that your finances are in such good shape that your family won’t have to worry about insurance when the term ends.

4. Homeowners or Renters Insurance

A good homeowners policy provides financial protection for your home and personal belongings. It should include the following types of coverage:

  • Extended dwelling coverage: Pays to rebuild your home
  • Personal property: Pays to replace your personal belongings
  • Liability: Covers injuries and damages that happen on your property
  • Additional living expenses: Reimburses your living expenses after the loss of an insured home
  • Flood or earthquake insurance: Covers these extra perils, if you live in an area prone to those things

Tip: Increase your policy’s coverage any time the value of your home goes up.

Renter’s Insurance: Your policy should cover personal property, liability and additional living expenses. A $20,000 personal property limit works for most people.

5. Long-Term Disability Insurance

Buckle up for this fact: 1 in 4 of today’s 20-year-olds will become disabled at some point before their 67th birthdays.1 That’s why long-term disability insurance is a must.

When it comes to short-term disability, simply having 3–6 months of your typical expenses should be enough to cover you.

  • But long-term disability insurance is the best way to cover you for injuries or illness longer than a few weeks or months.
  • Plan on paying around 1–3% of your annual income for a policy.
  • You’ll want a policy that covers 60–70% of your annual income.

6. Long-Term Care (LTC) Insurance

Good LTC insurance will take care of expenses for assisted living, in-home care, and nursing home care if you can’t look after yourself.

  • Medicare doesn’t cover the cost of long-term care.
  • 70% of Americans over 65 will wind up needing long-term care.2
  • The average annual cost for a private room at a nursing home is nearly $110,000.3 
  • Without coverage, costs come out of personal savings—like your retirement accounts.
  • It’s an absolute must for anyone over 60.

7. Identity Theft Protection

While ID theft protection isn’t technically an insurance product, it’s important to have.

  • Identity theft is becoming more common each year.
  • If it does happen to you, you’ll have to fix your credit report, deal with banks, and jump through legal hoops. 
  • Your policy should include restoration services (not just credit monitoring), so you’ll have a provider to help you with damage control.

8. Umbrella Policy

An umbrella policy stacks on top of your homeowners and auto insurance policies to add an extra layer of liability protection in a lawsuit-happy world.

When do you need it? If you have a net worth of at least $500,000. Why? Because when you build wealth, you put a target on your butt.

Types of Insurance  Do you need it? 
Auto Insurance
  • Auto Collision Coverage 
  • Comprehensive Coverage
  • Auto Liability 
Health Insurance
Term Life Insurance
Whole Life Insurance NO
Umbrella Policy 
Homeowners/Renters Insurance
  • Extended Dwelling Coverage
  • Personal Property Coverage
  • Liability Coverage
  • Additional Living Expenses Coverage 
Long- Term Disability Coverage
Short-Term Disability Coverage NO
Long Term Care Insurance
ID Theft Protection


The Best Way to Get the Coverage You Need

Get connected with one of our RamseyTrusted insurance providers.

  • They’re a network of independent agents and brokers who aren’t tied to a single insurance company.
  • They can shop a bunch of different companies to get you the best deal on the market.
  • We’ve vetted them to make sure they’ll serve you and your family with excellence

Next Steps

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