Understanding the different types of insurance
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Insurance policies are designed on the principle that although we cannot stop unfortunate events occurring, we can protect ourselves financially against them. There are a vast number of different insurance policies available on the market, and all insurers try to convince us of the merits of their particular product. So much so that it can be difficult to decide which insurance policies are really necessary, and which ones we can realistically live without. Purchasing the right insurance depends primarily on your current situation, for example, your age, whether you have dependants, and the benefits you receive from your employer.
However, there are four main types of insurance that experts agree would be beneficial to most of us, at some point in our lives.
Life Insurance
Life insurance is important if you have people who are dependent on you financially. If you were to die unexpectedly then your salary would no longer be available to cover regular household expenses such as mortgage payments, and utility bills, and your family would suffer financial hardship as a result. Life insurance is designed to cover these expenses in your absence, and to ease the financial burden experienced by your family at what would already be a very difficult time.
Researchers have found that if the primary wage earner were to die their family would only be able to cover their household expenses for just a few months; one in four families would have problems covering their outgoings immediately.
Most insurers recommend that you take out cover for around ten times your annual income. When calculating exactly how much cover you need you need to take into account mortgage or rent payments, and other living expenses, such as loan and credit card payments. You should also factor in childcare expenses, and future university fees if applicable.
There are two main types of life insurance policy to choose from: whole life policies, and term life policies. You pay for whole life policies until you die, and you pay for term life policies for a set period of time determined when you take out the policy. It is wise to engage the services of an experienced insurance broker, or financial advisor, before taking out a policy as they can differ widely, and it is important that you arrange cover that meets your needs and requirements exactly.
Health Insurance
Health insurance is another one of the four main types of insurance that experts recommend. This is definitely important to take out health insurance, and to assess whether your level of cover, if you already have a policy in place, is adequate.
It can be difficult to find affordable health insurance, particularly if you have a pre-existing medical condition, or if you are unable to access health cover via your employer. Again, it can be helpful to consult with a financial advisor to determine what type of policy is right for you.
Disability Insurance
Many of us doubt that we will ever become disabled, and therefore we omit to take out long-term disability coverage. However, figures show that three in ten workers will become disabled before they reach retirement age, and that twelve percent of the population is currently disabled; almost fifty percent of these people are of working age.
Many employers offer disability coverage as part of their benefits package. If your employer does not offer disability cover then it is advisable to take out your own policy from a private insurer. The best policies offer income replacement of around fifty to sixty percent of your income. Premiums vary considerably according to your age, your current state of health, and your lifestyle.