Paying for insurance month after month (when you don’t need it) can be a real drag. You might even feel like you’re paying for nothing—but don’t get tricked into believing that. Insurance might not be as flashy as something like your debt snowball, but insurance is just as important when it comes to things on the defensive side of your game plan here.
Think of insurance like a life jacket. It feels like a pain when you don’t need it, but when you do need it, you’re freakin’ thankful to have it there. It’s all about transferring the risk here. Without insurance, you could be one car wreck, sickness or emergency away from having a huge money mess on your hands.
But how do you know which types of insurance are worth it and which types are useless? We’ve got you covered.
Here are the eight types of insurance Dave Ramsey recommends:
- Term Life Insurance
- Auto Insurance
- Homeowners/Renters Insurance
- Health Insurance
- Long-Term Disability Insurance
- Long-Term Care Insurance
- Identity Theft Protection
- Umbrella Policy
Not sure what the difference is between all of these? Have no fear—we’ll break down everything you need to know about each of these types of insurance.
1. Term Life Insurance
If there’s only one type of insurance that you sign up for after reading this, make it term life insurance. Sure, a lot of people know life insurance is important, but somehow they still don’t make it a priority. Get this: The Insurance Information Institute says only 54% of Americans have life insurance.1 And since there is a 100% chance of dying someday—those aren’t very good odds.
Do you have the right insurance coverage? You could be saving hundreds! Connect with an insurance pro today!
Think about it: If you were to die unexpectedly, how would your spouse pay for monthly expenses without your income? The last thing you want your grieving spouse to worry about is how to keep food on the table and make the mortgage payment after you’re gone. But if you had a term life insurance policy for 10–12 times your yearly income, your family wouldn’t have to worry about making ends meet, losing their home, or changing their college plans if you’re not there to provide for them.
Don’t put this one off anymore. Talk to an independent insurance agent about term life insurance today. ASAP. Right now. It doesn’t cost much, but the peace of mind it gives you is priceless. (P.S. When you shop for life insurance, don’t forget to go with term life insurance. Whole life insurance is a gimmick in the long run.
And if you think you don’t need life insurance just because you’re young and single—think again. If you have a ton of debt and no savings to your name, look at a small term life insurance policy. It’s pretty easy for a healthy 30-year-old to find a cheap policy that will at least pay off your debt and cover burial expenses. Reach out to Zander Insurance, one of our RamseyTrusted providers, to get a term life insurance quote now.
If you don’t have a family, are debt-free and have enough cash to pay for your burial, you can hold off on life insurance. No harm, no foul. But think about this: The younger you are, the more affordable term life insurance is. And you’re never going to be younger than you are today. All that to say, if it’s something you think you could use in the future, it’s cheaper to get it now than in 15 years.
2. Auto Insurance
You should never drive around uninsured—not just because it’s against the law but also because getting in a fender bender can be ex-pen-sive. The Insurance Information Institute says the average loss per claim on cars is around $1,057.2 Imagine having to pay that kind of money out of pocket! The good news is, you’ve got options when it comes to auto insurance, so there’s no reason to skip it. Here are some different types of auto insurance coverage:
- Liability coverage. If you’re responsible for an accident, your liability coverage will take care of the costs of any injuries or property damage caused in the collision. Most states make you to carry a basic minimum amount of coverage, so check with your insurance agent to figure out how much you need.
- Collision coverage. This covers the cost to repair or replace your car if it’s damaged or totaled in a wreck.
- Comprehensive coverage. This level of insurance covers your losses that aren’t caused by the wreck itself, like theft, vandalism, flood, fire and hail.
Trying to figure out your auto insurance needs can be tricky, so make it simple—talk to an insurance agent to help you get the right protection you need on your car.
3. Homeowners/Renters Insurance
Whether you own your home or are renting, it’s a really good idea to have homeowners or renters insurance to cover you. If you already have a homeowners policy, make sure it includes this fancy thing called extended dwelling coverage. This kind of coverage adds an extra layer of protection above and beyond your policy limits.
Here’s the thing with extended dwelling coverage: The insurance company will replace or rebuild your property even if the cost goes over your policy’s coverage. But there’s a limit to how much they’ll pay out—usually 20–25% above the amount you’re insured for unless you opt for more coverage. Remember, the higher your home’s value, the higher the need for extended dwelling coverage.
When it comes to homeowners insurance, it’s always a good idea to check with your agent to know what your policy covers and what it doesn’t. You don’t want any surprises. Here’s some extras you might need to add:
- Flood insurance. Most homeowners don’t know that flood insurance doesn’t come with their regular policies. And flood insurance is also different than water backup protection. Is that all clear as mud? An agent can help you make sense of it all.
- Hurricane insurance. If you don’t live anywhere near a body of water, this insurance isn’t for you. But if you do live near the coast, you might want to look into hurricane insurance. Remember, if you don’t have wind insurance coverage or a separate hurricane deductible, your homeowners insurance policy won’t cover hurricane damage.
- Earthquake coverage. Depending on where you live in the country, earthquake coverage might not be included in your homeowners coverage. If you live in a place where earthquakes are known to shake things up, you might want to tack it on to your policy.
And remember, if you’re a renter, you’re not off the hook for insurance either. Without renters insurance, it’s up to you to replace your belongings if they’re lost in a fire, flood, burglary or some other disaster. Plus, a lot of landlords and apartments will require you to have renters insurance too. A good independent insurance agent can walk you through the steps of covering the basics of both homeowners and renters insurance.
Pro tip: If you have a full emergency fund in place, you can take a higher deductible and lower the premium on your policy to help you save money.
4. Health Insurance
Another super important type of insurance you can’t go without? Health insurance coverage. A study from academic researchers showed that about 67% of people who file bankruptcy do it because they’re drowning in medical debt.3
Here’s the hard truth: If you don’t have health insurance, you’re leaving yourself wide open to a money disaster. Just one out-of-the-blue medical emergency could add up to hundreds of thousands of dollars of medical bills. Don’t put yourself in that position by not having health insurance.
The high cost of medical insurance isn’t an excuse to go without coverage—even if you don’t go to the doctor a lot. To help cut back on the cost of health insurance, you could get a high-deductible health insurance plan. Sure, you’re on the hook to pay more of your up-front health care costs, but you’ll pay a lower monthly premium.
Plus, a high-deductible health plan qualifies you to open a Health Savings Account (HSA)—a tax-advantaged savings account used for paying medical expenses.
We’re big fans of HSAs around here. Here are some more of the benefits an HSA gives you:
- Tax deduction. You can deduct HSA contributions from your gross pay or business income. In 2022, the tax deduction is $1,400 for singles and $2,800 for a family.4
- Tax-free growth. You can invest the funds you contribute to your HSA, and they grow tax-free for you to use now or in the future.
- Tax-free withdrawal. You can use the money tax-free on qualified medical expenses like health insurance deductibles, vision and dental.
Some companies now offer high-deductible health plans with HSA accounts as well as traditional health insurance plans. Take a look at your options and see if a high-deductible plan could end up saving you money. An independent insurance agent can help walk you through high-deductible health plan options you can combine with an HSA.
5. Long-Term Disability Insurance
Long-term disability insurance protects you from losing your income if you’re unable to work for a long stretch of time because of an illness or injury. Don’t think a permanent disability could sideline you and your ability to work? Think again. The Social Security Administration says, just over 1 in 4 of today’s 20-year-olds will become disabled before reaching age 67.5
Those odds are way too high for you to skimp on long-term disability insurance. If you’re in your prime income-earning years, a permanent disability could derail your dreams of homeownership or even paying for your kid’s college.
Bottom line? Make sure you’re covered. Tons of companies offer long-term disability insurance to their employees these days, so start there.
When you’re looking at your options, you’ll also find short-term disability insurance that fills in income gaps caused by an illness or injury that keeps you out of work for three to six months. That’s the insurance you can skip—because your fully funded emergency fund should cover that. To figure out what other insurance coverage you might actually need, take our quick Coverage Checkup.
6. Long-Term Care Insurance
Long-term care insurance covers a ton of services like nursing home care and in-home help with basic personal tasks (bathing, grooming and eating). Usually, long-term care means those who have a chronic illness or disability need ongoing help. If it sounds expensive, that’s because it is. And long-term care costs aren’t usually covered by Medicare either.
So, who really needs long-term care? To protect your retirement savings from getting drained by long-term care, get this coverage when you turn 60. Remember that while you probably won’t need long-term care before then, a lot of factors (like your health and family history) go into your decision of when to buy long-term care insurance—and how much you’ll pay for it.
That’s why it’s important to talk to a RamseyTrusted pro like an Endorsed Local Provider about long-term care that fits your situation. And even if you’re not close to this stage of life, your parents might be. So bite the bullet and take time to talk with them about their long-term care options too.
7. Identity Theft Protection
Identity theft isn’t a joke—even if you’re careful about protecting your personal information. In fact, the 2021 Identity Fraud Study released by Javelin Strategy and Research said that identity threat losses added up to $56 billion in 2020.6 Data breaches are in the news way too much, and retail stores are under constant attack by hackers who break into their payment systems.
Think about it: With just a few important bits of information about you, criminals have all they need to do a number on your money by taking out a mortgage in your name, opening up lines of credit, or filing a false tax return.
Cleaning up an identity fraud situation could take years to handle on your own, so make sure your insurance includes identity theft services that clean up the mess for you.
8. Umbrella Policy
An umbrella policy adds an extra layer of protection for you and your assets when you need coverage that goes above and beyond your homeowners or auto insurance. Let’s say you end up at fault for a multiple-vehicle accident (that’s no fun). Your medical bills and property damages could quickly add up to more than your auto insurance will even cover. And if you’re sued for the difference, your savings, your home and even your future wages could be on the chopping block.
Protect yourself from a situation like that with a personal liability umbrella policy. In fact, Dave recommends an umbrella policy for anyone with a net worth of $500,000 or more. For a few hundred dollars a year, an umbrella policy can increase your liability coverage from the standard $500,000 to $1.5 million. Talk with an Endorsed Local Provider to get the type of umbrella insurance coverage that’s right for you and your family.
One More Thing to Remember . . .
When you’re looking at all of this, stay away from gimmick policies like cancer insurance, accidental death or anything (like whole life or universal life) that packages your coverage with investments. These types of insurance policies are just a way for the seller to make extra money off of you. You need an agent who’s on your side—not the side of the insurance company.
That’s why picking out the right trusted insurance agent is so important. An industry expert like a RamseyTrusted insurance pro will work with you to make sure you’ve got all your bases covered. Plus, if you ever have to file a claim, you’ll have an advocate on your side who will guide you through the process—the Ramsey way.