5 Different Types of Insurance and Who They're Best For
The world of insurance can be confusing, but learning about some basic types and who should consider them takes away some of the mystery.
When it comes to purchasing insurance, there are so many different options to choose from that it can be a real headache trying to figure out what you need. You can find coverage for almost anything on the market (and we mean anything—check out this list of Strange Insurance You Probably Don't Need), so it helps to have a little guidance about what kinds of policies are worth getting. Start with this primer on the five basic options available to you and go from there.
1. Travel Insurance
If you are taking a trip for the first time to another country, you should consider purchasing travel insurance.
Depending on the policy, it could cover flight or hotel reservation cancellations; lost, stolen, or delayed baggage; medical expenses; and other losses that you might incur while traveling. In particular, the cost of medical services can quickly add up in another country, especially for a medical emergency or evacuation; therefore, travel insurance could easily be worth the premiums paid. Opting for a policy that focuses on medical coverage may be smart when traveling to high-risk areas. Just make sure you choose a policy that financially safeguards you against the appropriate risks (if you plan to be away for a long time, see Expatriate Insurance or Travel Insurance: Which Is Right for Your Long-Term Trip Abroad?).
2. Burial Insurance
Burial insurance is a whole life insurance policy that features a death benefit typically ranging from $5,000 to $30,000. Because it pays such a relatively low death benefit, it is a low-cost option suitable for those worried about burdening their family with the costs of their funeral and the burial service.
This policy covers various funeral and merchandise expenses, such as the casket, cemetery plot, gravestone, and casket (to learn more, see A Look at Burial Insurance).
3. Life Insurance
There are many types available, so let's just focus on three common ones.
First, term life insurance covers you for a specified period of years, and it suits those looking to cover lost potential income during their working years so that their family can meet certain financial goals, such as paying off a mortgage and college expenses for the kids.
Whole and universal life insurance, on the other hand, are both types of permanent life insurance and offer lifetime coverage and a savings component that can accumulate wealth over time. Both can help policyholders preserve the wealth that they want to leave their beneficiaries and serve as a long-term income replacement tool (see Insurance as an Investment to learn more).
4. Disability Insurance
A type of income protection, disability insurance provides replacement income when you suffer an injury and become disabled or unable to work. Depending on your specific policy, you may receive tax-free benefits of up to 65 percent of your gross income.
This type of insurance is especially important for a working professional with a family, as disabling workplace injuries are not statistically uncommon. In fact, about 25 percent of all U.S. workers will become temporarily disabled at some point before retirement. Given this, it may also be worthwhile even if you do not have dependents (find out Why You Need Disability Benefits).
5. Credit Insurance
Credit insurance insures the repayment of loans in case you become unable to pay due to death, disability, job loss, or other circumstances that prevent you from earning income to pay. Typically, it covers the minimum payment to any sort of loan for a specified period of time (see A Look at Credit Insurance to learn more).
The issue, however, is figuring out whether it is right for you, which is rather difficult to assess. It may be worth considering in case you have several loans and can afford the peace of mind it can offer.
The more you know about the different types of insurance and how they can apply to you, the better equipped you are to identify and buy coverage that suits your situation. Make sure you deal with a trustworthy broker or insurance company and understand all the details of a policy before you sign.