Why Insurance is Indispensable

Nobody likes another monthly bill, especially for something as intangible as insurance. But insurance is one of the building blocks of financial security - and something it's easy to ignore until it's too late.

Most of us are familiar with health and auto insurance. Both are considered indispensable and are required by law. However, one could argue that other types of insurance are just as important. Let's examine the critical role that optional insurance policies may play in securing financial security for you and your family.

Life insurance

Here's a good yardstick to use when evaluating your need for life insurance: Do you or a loved one depend on your income? If the answer is yes, then you almost certainly need insurance. A recent survey showed that up to 30% of people who know they need a policy have yet to purchase one. Why's that?

Most people don't like to dwell on their mortality, and younger people, in particular, may view life insurance as something for later - perhaps when they have more income to replace. Life insurance also requires that we make financial sacrifices today to benefit those we may leave behind - a challenge especially for those living paycheck-to-paycheck. 

However, life insurance can be crucial in securing your family's financial security by offering protection against losing earning power. And life insurance doesn't simply have to be a hedge against untimely passing. You can use life insurance as an investment vehicle by opting for permanent whole-life insurance instead of purchasing a term policy that pays out only upon death. While premiums for these policies are higher than term premiums, part of your premium is invested, allowing your policy's value to grow. You can then withdraw or borrow against the equity generated by the policy.

Most experts suggest that term-life policies are the best deal for most families. But if you need a nudge to buy a policy, the whole-life option may be worth considering.

Additional Insurance Options

Depending on your financial situation and current insurance coverage, there may be other ways that insurance can increase your financial security. A few examples include:

Enhanced Auto Insurance

Even though auto insurance is required by law, the minimum requirements in most states are so low that you could be financially responsible for losses in the event of a significant crash. Purchasing more than the minimum, such as up to $300,000 in coverage per accident, can work to protect your assets and savings - in fact, the bill for even relatively minor crashes can easily exceed the minimum requirements in many states.

Umbrella Insurance

Umbrella insurance is another policy that people find helpful. It extends the amount of liability coverage you have under an existing auto or homeowners policy. So, for example, if a car crash results in you being sued for $500,000 and you only have $100,000 in liability coverage under your standard auto policy, a supplemental umbrella policy can close the gap.

Renter's Insurance

Renter's insurance is another type of policy that's often overlooked. Most people own a laptop or desktop computer, clothes, furniture, electronics, plus more. These assets may have been accumulated over years and may not seem worth much. But have you ever considered how much it would cost to replace your possessions if they were lost or stolen?

Designed to cover the replacement cost of your possessions in the event of a fire, theft, vandalism, flood, or any other damaging event, renter's insurance offers many of the benefits of homeowners insurance. It's also relatively cheap - between $150 and $300 per year for approximately $20,000 in coverage for personal possessions and $100,000 or more in liability protection. 

Renter's policies may also cover additional living expenses if your apartment becomes unlivable and even your liability if someone is hurt while in your home. If you don't own a home, renter's insurance may be something to explore.

The Takeaway

We might begrudge paying for it, but insurance protects our families and financial futures - and the examples here are just a few to consider. So, before writing it off as something to deal with later, consider the financial benefits these policies may offer you and your family.