Do you really need insurance? Well, yes.

Some types of insurance are required by law. However, the amount of insurance and various types of insurance you need really come down to you, your family, and your overall attitudes about risk.

That’s what insurance is, the mitigation of risk. You could skate through life with as little insurance as legally possible — saving money in the short term today — but find yourself stuck with a massive hospital tab, unmanageable repairs, or life-altering expenses later.

Sure, today probably won’t be a life-changing day that alters your financial future. There’s a very, very good chance disaster won’t strike while you’re reading this. But over the course of your lifetime, you’re going to have horrible days, bad luck days, and unexpected hardships.

Insurance is your lifeline for when life happens. It protects your future by letting you pay just a little bit now for more peace of mind down the road.

The entire point of insurance is to offer financial protection against catastrophe. The companies, policies, and payouts may change. Yet that guiding principle of insurance has remained consistent since the very first recorded insurance contract in 1347 (in Genoa, Italy, for trivia fans — a marine insurance policy to sail the high seas with less stress).

Over 670 years later, you now have a wide range of policies available (though you can still insure your boat, too). Some you’ve got to have, some make sense for most stages of life, others can be deferred, and a few can be avoided entirely with a couple that are just for suckers.

Here's a quick run-down on types of insurance policies for your consideration.

Required policies: the must-have insurance policies.

These aren’t just recommended policies. They’re pretty necessary for everyday American life. You’ll have plenty of coverage options but getting coverage itself is not optional — whether required by the laws of the land or simply your landlord.

Auto insurance

If you want to drive on public roads in the U.S., most states will require you have current automobile insurance. New Hampshire and Virginia are the exceptions. But before you think it’s a bargain to “Live Free or Die” on the New Hampshire highway, know you’re still financially responsible for any damages you cause while operating your vehicle.

And beyond your liability, drivers who can’t pay for the cost of those damages will have their licenses suspended or revoked.

Auto insurance, on the other hand, is set up to cover the cost of damages. At minimum, most states require your car insurance policy to have “liability coverage” at a certain amount. Liability coverage takes care of the damage you cause other people. This includes both “bodily injury liability” (in case you hurt someone in a car accident to help cover any medical bills) and “property damage liability” (for the car itself or any other property involved in an accident).  

Additional optional auto insurance policies feature:

• Uninsured and underinsured motorist coverage — in case you’re hit by a driver who doesn’t have car insurance (required in some states, but optional in others).

• Comprehensive coverage — helping you repair or replace your vehicle for things like auto theft, damaging weather, and other mishaps (this coverage is usually optional).

• Collision coverage — to fix your own car if you cause an accident or hit something on the side of the road (optional, but often required if you’re leasing a vehicle).

• Medical payments coverage — in case you or your passengers are injured in an accident (optional in some states, required in others).

• Personal injury protection — similar to medical payments coverage, but can also include expenses related to your injury like lost income (only available in certain states).

Health insurance

The Affordable Care Act made health insurance mandatory in 2010 — with a tax penalty for anyone who refused health insurance coverage unless eligible for an exemption. That changed in January 2019 — and today, there is no longer a federal mandate that requires you to have health insurance.

However, several individual states do require you to maintain health insurance. If you live in California, Massachusetts, New Jersey, Vermont, Rhode Island, or the District of Columbia (D.C.), not having health insurance can cost you come tax time.

Still, taxes are hardly the biggest financial concern when it comes to your health. Medical bills aren’t cheap. In fact, medical expenses are the No. 1 reason people go bankrupt in the United States — accounting for 66.5% of all bankruptcies, nationwide.

Even if you’ve been diligently saving for decades, a serious medical diagnosis or injury can quickly erase years of your savings, IRA contributions, or home equity.

Thankfully, for many Americans, you can get health insurance through your employer as a benefit — and employer-sponsored health insurance is typically available at reduced monthly rates compared to individual health plans.

Because health insurance plans can be expensive, the plan you choose can make a noticeable impact on how much money you have in your budget each month — so finding the right plan can help you live a little more today.

Here’s a few common types of health insurance plans:

• PPO (Preferred Provider Organization) — with a PPO plan, you typically pay more upfront in your monthly premium (your monthly payment), but because you have lower deductible, you don’t have to worry as much about racking up a bill later. Once you hit your deductible, you’re don’t have to pay any additional costs for covered medical expenses.

• HDHP (High Deductible Health Plan) — unlike a PPO, your deductible is higher. That means your insurance won’t pay for medical costs until you’ve already paid your deductible amount. You’ll save with a lower monthly premium, but if you do get sick, you’re going to pay more overall out-of-pocket costs.

  • NOTE: If you’re not the type to go the doctor, you can also look into a Health Savings Account (HSA). An HSA works side-by-side with an HDHP — offering you tax-advantaged savings on qualified medical expenses. It’s money you set aside in advance to help cover the out-of-pocket costs before you reach your higher deductible.

• Health Maintenance Organization (HMO) — here you’ll find lower monthly premiums, but also less flexibility. HMO plans don’t offer much choice in terms of your doctors or hospital network. You’ve got to use in-network or find doctors that accept your HMO. If you know your preferred doctor and/or nearby healthcare facilities are in-network (or if you don’t really have a preference in terms of where you seek medical care), an HMO could be right for you.  

• Medicare — Medicare is federal health insurance, available once you reach age 65. There’s Medicare Part A (hospital insurance) and Medicare Part B (medical insurance). That’s what makes up “Original Medicare.” You can also find additional Medicare coverage through Part C — bundled coverage that may also include things Original Medicare doesn’t otherwise cover, like dental, hearing, and vision insurance. Plus, there’s Medicare Part D (prescription drug coverage), which can lower your out-of-pocket costs for prescriptions.

Homeowner’s insurance

For a lot of families, your home is the largest purchase of your life. And your home equity may make up a major share of your net worth. It only makes sense to protect it.

Homeowner’s insurance guards against 1) damage to the interior or exterior of your home, and 2) your own personal liability for any damages or injuries that occur on-site.

If your home is struck by lightning, has a tree fall through it, or even gets tagged by your local neighborhood pranksters, your home insurance can offset the cost of repairs for covered issues. It can also cover in the interior of your home if in the event your home is destroyed by fire or other disaster. But you should look into exactly what circumstances are covered in homeowner’s insurance to make sure you don’t need additional riders added on for other types of protection.

For example, many home insurance policies don’t include coverage for “acts of God” — things like earthquakes, floods, or hurricanes if you live in an area where those are common. When Hurricane Harvey hit Houston in 2017, an estimated 80% of all flooded homes didn’t have flood insurance. So if you live in a flood plain or other at-risk disaster zone, make sure you have the appropriate insurance plan.

The second key element of home insurance protects you from lawsuits filed by anyone harmed on your property. If you’re out of town and your kids throw a house party gone off the rails, you’re on the hook. Or if your neighbor falls down your stairs, that’s on you, too. Home insurance helps you pay for these types of scenarios that may be out of your control, but still within your responsibility.

There are three common types of home insurance plans:

• Actual cash value — this insures you up to the cash value of your house plus the current worth of your possessions. It’s the replacement cost (what you paid for your home and possessions) minus depreciation (what all those items are worth now).

• Replacement cost — unlike actual cash value, here you don’t deduct depreciation. You would receive the full amount to buy all your possessions as new.

• Guaranteed replacement cost — not only does this cover the full amount of what you paid for your home and possessions (without depreciation), it covers additional costs needed to repair or build your home. Guaranteed replacement coverage is usually capped around 20 to 25% above your home’s value.

Renter’s insurance

Like homeowner’s insurance, renter’s insurance also covers damage to your home and liability against lawsuits. It doesn’t cover damage to the exterior of where you live, but you shouldn’t be responsible for those as the tenant. Rather, renter’s insurance protects you from damage to the personal property inside your home. So you can get reimbursed in the event of a gas leak, riot, out-of-control truck, or other unforeseen curveball.

And it also protects you against injuries or damages that happen inside your home.

It’s common policy for apartment buildings require proof of renter’s insurance before you sign your lease and for it be renewed by the time you extend your lease.

Smart-idea insurance policies: you should really look into these.

Asset protection 

Your home may be your most expensive purchase, but chances are there are plenty of other valuables you use on everyday basis. Think your smartphone, laptop, electronics, and other tech. While home insurance may cover the possessions inside your home in extraordinary circumstances, it’s not going to cover what’s lost, stolen, or broken over the course of your everyday life.

If you can’t live without it — or can’t do your job without it — you should probably look into insuring it. Asset protection is generally pretty affordable. The price varies based on the cost of what the item you want to insure, with some plans starting at under $10 a month.

NOTE: Are your valuables covered under warranty? Make sure you know the difference between warranty vs. insurance policies, so you have all the coverage you need.

Identity theft protection 

If you have a Social Security number, you’re vulnerable to identity theft. But your exposure doesn’t stop there. Identity thieves can use other information and still commit fraud. Your birthdate, address, email address, tax documents, and medical records are just a few other ways your data can be sold or exploited.

In 2019, there were $1.7 million fraud reports resulting in more than $1.9 billion in fraud losses.

Finding coverage now is a smart move, before it happens to you. It’s not legally required, but it can save you a whole lot of hassle. Once your identity falls into the wrong hands, it’s tough to get back to normal — with identity thieves wreaking havoc on your finances and credit that can impact your ability to get a loan, mortgage, or even rent an apartment down the road.

Identity theft coverage features include:

• Identity monitoring services — this lets you know if your information has been compromised, with plans that can offer dark web surveillance and other features to check for your personal information for sale on the internet. 

• Credit monitoring services — your credit can go up or down in any given month based on several factors like how much current debt you have on your credit card. But if your credit makes a major move, you want to know. This can alert you if you’ve been compromised.

• Identity restoration services — Identity restoration is the assistance you need to get life back to normal if identity theft or fraud happens to you, helping you reclaim your identity and clear your name.

A good identity protection plans will bundle all of these services with other additional features.

Life insurance

Life insurance gives you a way to provide financially for your loved ones in the event that something happens to you. Unlike other types of policies, you’re not going to be around to collect this check. A life insurance policy pays out a “death benefit” — the money that goes to your beneficiaries when you pass away. There are two popular life insurance policies — term life insurance and whole life insurance.

Term life insurance

Term life insurance gives you coverage for a set amount of time. A 30-year term life insurance policy would cover your family in the event you pass away within the next 30 years. The cost of your premiums (how much you pay each month or year) will be determined based on your age, health, and other factors.

The younger and healthier you are, the more likely you are to pay a lower premium. If you need a longer policy, you can get new terms at the end of your first policy (though if you’re much older, expect the cost to go up substantially). Or you can always switch your term life policy to a whole life policy. If you work with the same insurance provider or agent, you can sometimes do this without a medical exam.

Whole life insurance

A form of permanent life insurance, this policy lasts your entire life. You’re locked into the same contract, usually at a higher premium. Because no matter who you are, everyone’s life ultimately ends. That means this policy is definitely going to pay out as long you keep paying your premiums — which can cost a pretty penny. Whole life insurance plans are on average 5 to 15x as expensive as term life insurance.

Financial coach Dave Ramsey adamantly recommends term life insurance over whole life policies. Why? Because of the much lower cost. For most people, it’s a better use of your money. Use your term life insurance savings to put toward a separate investment account or other more advantageous way to provide for your family’s future.

QUESTION: How much life insurance do you need?

Part of choosing the right life insurance for you is calculating the death benefit you’d like to provide. As a general rule of thumb, you should aim for 10x your annual income, plus an extra $100,000 per child for college expenses.

But don’t forget about your outstanding debt, remaining mortgage payments, funeral costs and other final expenses. Add those onto your total to make sure your loved ones are covered. In the end, the life insurance policy amount you need depends on how many years you think you’ll need to provide for your loved ones and current financial situation.

Long-term disability insurance

If you develop a disability or suffer from a debilitating accident, long-term disability insurance will help cover lost income and medical care. It may not cover your full income, but it provides ongoing cash for years if you can no longer work.

You may be perfectly healthy now with disability coverage nowhere near your radar. The reality is that, according to the Social Security Administration, 25% of people who are 20 years old today will become disabled before their retirement age.

Disability isn’t just for the few or the elderly. It’s something you need to be prepared for.

Pet insurance

If you’re a pet owner, you’ve got more than just human lives to look after. But unlike health insurance for us humans, the great thing about pet insurance is that pet insurance policies are valid at any licensed U.S. veterinarian’s clinic. It’s a simple insurance policy that can help you save time, money, and heartache, especially in emotional situations where you have to weigh the value of your pet’s life vs. the cost of an expensive procedure.

Pet insurance really pays off when it comes to emergency veterinary care (which can run up quite the bill and make for hard choices). What each policy covers can vary — but plans that include “accident” and “illness” coverage can help you avoid the priciest of procedures.

Don’t forget this one policy you can save for later.

Long-term care insurance

You don’t need it now, but you start thinking about it around the same time you start thinking about Medicare. It’s the insurance plan that makes sure assisted living and retirement home costs don’t burn through your all your remaining savings — or place an unfair burden on the people you love.

The 2020 Genworth Cost of Care Survey shows that the median annual cost for an assisted living community is $51,600. For a semi-private room in a nursing home facility, it’s $93,075. If you don’t have long-term care insurance, that’s a lot of money out of your pocket well past your prime earning years.

Unfortunately, most regular health insurance plans don’t cover long-term care — nor does Medicare — and if you rely on Medicaid (which is only available to you once your savings are gone), you’ll be stuck with your choice of only the facilities that accept payment through government programs. Not to mention, you could expose or deplete other assets you’d rather leave to your children.

The more you plan ahead for long-term care and cover it with an adequate insurance policy, the more comfortable your final years will be.

Unnecessary insurance: you probably shouldn’t bother with these.

Insurance is a numbers game — and it’s a for-profit business. So if you demand coverage and are willing to pay a crazy high premium, there’s pretty much a policy for practically anything. But as for more common insurance policies you can ignore altogether, here are a few you can likely do without.

Rental car insurance 

Wait, but what happens if you wreck that rental? Don’t worry. There’s a good chance you’re already covered by your existing auto insurance policy or even your credit card company. Before you shell out those extra bucks at the counter of the rental car company, check with your auto insurance provider and your credit card company both to see what coverage you already have.

Travel insurance

This one also might be covered by your credit card. Not to mention, most travel insurance policies are pretty restrictive with a lot of exclusions, not a get-out-of-jail card for any type of cancellation. There’s also less regulation for travel insurance companies. If it’s not specifically listed in your travel insurance policy, assume it’s not covered. Just ask the travelers who booked trips in early 2020, only to realize COVID-19 was a “foreseen” circumstance for many travel insurance providers or that “pandemics” weren’t part of their policy.

Body part insurance 

Are you a Super Bowl-winning quarterback with a million-dollar arm? Hand model? Hair icon? Unless you have an especially impressive physical attribute that’s tied to how you make your money, you’re not going to need to insure the individual parts of your body. Rather a regular health insurance plan should do just fine.

Leave this novelty insurance for celebrities with endorsement contracts. Until you hit it big, leave this one in the bag.

In summary

Start thinking about insurance, no matter your age — and be sure to shop around for the right options and plans to fit your needs. Just make sure you know what policies you need, what’s covered, and any coverage or insurance benefits you may get through your employer already.

A few dollars now can go a long way — today’s risks are tomorrow’s regrets. You can’t purchase insurance after life goes wrong. And as of 2021, no one sells time machines.