5 Types of Insurance Policies and Coverage You Need

1. Health Insurance

Health insurance helps pay for medical expenses ranging from routine checkups to major surgeries. It can reduce your out-of-pocket costs, give you access to preventive care and protect you from the financial shock of an unexpected illness or injury.

Plans vary in cost, coverage and flexibility, and the type you choose can affect both your monthly premiums and your choice of doctors:

Common types of health insurance plans include:

• Health maintenance organization (HMO): HMOs typically require you to choose a primary care physician (PCP) and get referrals before seeing specialists. They often have lower premiums but limit coverage to in-network providers.
• Preferred provider organization (PPO): PPOs offer more flexibility to see any doctor without a referral, including out-of-network providers—though you'll pay more for the latter. Premiums are usually higher compared to HMOs.
• Point of service (POS): POS plans combine features of HMOs and PPOs. You choose a PCP and need referrals for specialists, and you can see out-of-network providers at a higher cost.
• High-deductible health plan (HDHP): These plans have lower monthly premiums but higher deductibles, making them a good fit if you're generally healthy and want to pair your plan with a health savings account.

To figure out the right amount of health insurance for you, consider your typical medical needs, budget, the insurance your preferred doctors accept and any prescription medications you take regularly.

Learn more: How Much Does Health Insurance Cost?

2. Auto Insurance

Auto insurance protects you financially if you get in an accident or if your car is damaged in another way. Most states require a minimum amount of liability coverage, but additional protections can help you avoid large out-of-pocket costs.

Key types of auto insurance coverage include:

• Liability insurance: Pays for injuries or property damage you cause to others in an accident. It's required in most states, but the minimum requirement is often insufficient. Experts recommend at least $100,000 per person and $300,000 per accident for bodily injuries and $100,000 for property damage.
• Collision insurance: Covers repair or replacement of your vehicle after an accident, regardless of fault. Lenders and leasing companies often require it.
• Comprehensive insurance: Protects your car from non-collision damage like theft, vandalism or natural disasters. Lenders and leasing companies often require it.
• Uninsured/underinsured motorist insurance: Pays for your expenses if you're hit by a driver with no insurance or too little coverage. Roughly half of all states require this insurance.
• Personal injury protection (PIP): Covers medical expenses, lost wages and related costs for you and your passengers. It's required in states with no-fault insurance laws.
• Medical payments (MedPay) coverage: Similar to PIP, but it typically only covers medical costs. It's optional in most states.
• Optional coverages: Some insurers offer extras like roadside assistance, rental car reimbursement or gap insurance.

To figure out how much car insurance you need, start by meeting your state's minimum requirements. Then, consider your car's value, your budget and how much risk you're willing to take on yourself.

Learn more: How Much Does a Car Insurance Policy Cost?

3. Homeowners or Renters Insurance

Whether you own or rent your living space, it's a good idea to get coverage for your property or personal belongings. That's where homeowners and renters insurance come in.

Homeowners Insurance

Homeowners insurance typically covers your home's structure, your belongings, liability claims and the cost of housing if you can't live in your home after a covered event.

Common coverage includes:

• Dwelling coverage: Pays to rebuild or repair your home's structure if it's damaged by a covered peril, such as fire or a windstorm. It's recommended to insure your home for at least 80% of its replacement cost.
• Personal property coverage: Covers the cost to repair or replace belongings like furniture, clothing and electronics if they're damaged or stolen. It's typically recommended to get between 50% and 70% of your dwelling coverage, but consider doing an inventory of your possessions to see if you need more.
• Liability protection: Pays legal costs, medical bills and settlements if someone is injured on your property or you cause damage to others. Many policies include at least $100,000, but $300,000 to $500,000 is often recommended for better protection.
• Additional living expenses (ALE) coverage: Reimburses you for temporary housing, meals and other costs if you can't live in your home due to a covered loss. Insurers typically offer between 20% and 30% of your dwelling coverage.

Learn more: How Much Does Homeowners Insurance Cost?

Renters Insurance

Renters insurance doesn't cover the building itself—that's your landlord's responsibility. But it does protect your personal belongings and provides important financial protection if something goes wrong.

Common coverage includes:

• Personal property coverage: Pays to repair or replace your belongings (including clothes, electronics and furniture) if they're damaged or stolen due to covered events such as fire, theft or certain natural disasters. Take inventory of your belongings to determine how much coverage you need.
• Liability insurance: Covers legal and medical costs if someone is injured in your rental or if you accidentally damage someone else's property, such as flooding the downstairs neighbor's unit. Coverage usually starts at $100,000, but experts recommend a minimum of $300,000.
• Additional living expenses (ALE) coverage: Helps pay for temporary housing, meals, and other increased living costs if your rental becomes uninhabitable due to a covered event. Insurers usually offer between 30% and 50% of your personal property coverage.

Learn more: How Much Does Renters Insurance Cost?

4. Life Insurance

Life insurance provides a payout to your beneficiaries if you die during your policy period. The benefit can help your loved ones cover living expenses, debts or future financial goals.

How much coverage you need depends on your income, debts and your family's needs. Some experts recommend using a rule of thumb like 10 times your annual income, while others calculate it based on specific expenses unique to your family's situation.

Here's a look at the most common types of life insurance.

Term Life Insurance

Term life insurance offers coverage for a fixed period—typically 10, 20 or 30 years—and pays a death benefit only if you die during that term. It's often the most affordable type of life insurance, making it ideal for covering temporary needs like a mortgage or your child's education. Once the term ends, coverage stops unless you renew the policy or convert it to a form of permanent insurance.

Whole Life Insurance

Whole life insurance provides lifelong coverage and includes a savings component called cash value that grows at a guaranteed rate. Premiums are typically higher than term life, but they stay level for life, and part of what you pay goes toward building that cash value. You can borrow against the policy's cash value while you're alive, though doing so may reduce the death benefit.

Universal Life Insurance

Universal life insurance also offers permanent coverage, but with more flexibility compared to a whole life policy. You can adjust your premiums and death benefit within certain limits, and the policy's cash value earns interest over time. This type of policy is more customizable than whole life, but requires more active management to avoid lapses in coverage.

Variable Life Insurance

Variable life insurance combines permanent coverage with investment options. Instead of earning a fixed rate, your cash value is invested in subaccounts, which function similarly to mutual funds. This means that your cash value can grow or shrink depending on market performance. This type of policy carries more risk and potential reward, and may require a closer eye on investment performance.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance doesn't require a medical exam or health questions, making it a potential option for people with serious health conditions. However, it typically comes with low coverage amounts (often $25,000 or less) and higher premiums. Many policies also include a waiting period—usually two years—before the full death benefit kicks in.

Learn more: How to Buy Life Insurance

5. Disability Insurance

Disability insurance replaces part of your income if you can't work due to illness or injury. The Social Security Administration estimates that a quarter of today's 20 year olds will become disabled before reaching retirement age, making this coverage important for nearly everyone.

There are generally two types of disability insurance: short- and long-term coverage. Here's how they work and how much to consider getting:

Short-Term Disability Insurance

Short-term disability insurance kicks in quickly—usually after a waiting period of about one to two weeks—and covers you for a few months, often three to six. It's meant for temporary setbacks like recovering from surgery, an injury or having a baby. Aim for enough coverage to replace at least 60% to 80% of your income during the benefit period.

Long-Term Disability Insurance

Long-term disability insurance takes over once short-term coverage ends, typically after a 90-day waiting period. It's designed for more serious or lasting health issues that could keep you out of work for years, or even until retirement. Look for a policy that covers around 60% to 80% of your gross income and make sure it lasts at least until age 65 or your planned retirement date.

Learn more: Short-Term vs. Long-Term Disability

Frequently Asked Questions

The Bottom Line

Health, auto, home or renters, life and disability insurance are all worth considering to protect yourself and your family. However, the right insurance mix depends on your lifestyle, financial situation and risk tolerance.

As you research your options, take time to compare policies, coverage limits and costs so you can build a safety net that fits your situation without paying for protections you don't need.