Over the course of your life, you’ll likely be encouraged to sign up for dozens of different kinds of insurance policies, from “Grow-Up” life insurance for newborns to long-term care insurance closer to the end of your life. In between, you’ll be given the option to buy coverage on everything from cell phones to your wedding.
But what policies do you really truly need?
Money expert Clark Howard is not a fan of most of these insurance offerings.
“You should never insure something that is a consumer item,” he says. “People always worry about insurance on narrow things instead of the big things in life they really need it on.”
“As a general rule, people are emotionally drawn to buying insurance on fun things like a TV, cell phone or gaming console. It’s this psychological thing where the phone becomes so important to us that we feel like we should insure it,” he says.
Here are the insurance policies you really need
Here are the four primary insurance policies Clark says you absolutely do need:
Let’s take a look at the these policies — and know that you can pretty safely ignore the plethora of other insurance coverages that are marketed to you every day.
1. Health insurance
Sickness and injuries are just a fact of life, so you definitely need health insurance, whether it’s through your employer or the marketplace.
One of the main things you need to decide in health insurance is whether you want an HMO (health maintenance organization) or PPO (preferred provider organization).
What’s the difference between an HMO and PPO?
The difference between an HMO and PPO is that with the former you get access to one network of doctors, hospitals and health care providers for an agreed upon price.
With a PPO, you also get a network, but you have the flexibility of using services outside of that network, which are covered to some degree.
One thing you’ll want to find out before you sign up for health insurance is your out-of-pocket limit.
This is the maximum amount you’ll have to spend for medical care in a year, not including your monthly premiums and as long as you stay within your insurance coverage network.
Learn about different policies and more in our Health Insurance Guide.
2. Life insurance
Life insurance is something you need if you have people who depend on your income, but there are a lot of options out there, some better than others. The one that Clark recommends is term life insurance, which requires you to pay a fixed rate for coverage for a certain period of time.
Here’s everything you need to know about term life insurance, including how to buy it.
What’s the difference between life insurance and accidental death insurance?
The difference between life insurance and accidental death insurance is that the latter only covers death if it is an accident. Therefore it is more limited than life insurance.
Clark says that, “If you have life insurance, you don’t need accidental death insurance and that other stuff. What does it really matter how you die when you’re dead?”
3. Homeowners insurance
It’s possible that you could have a home without homeowners insurance, but if you have a mortgage, you’re likely required to have coverage.
That means that a home insurance policy is a necessity for most of us. What you don’t need is something called “hazard” insurance.
Your basic homeowner’s insurance should cover “hazards” like fire, smoke, lightning, hail and the like. The same is true for “fire insurance.”
What’s the difference between homeowners insurance and flood insurance?
Many people think because they have homeowners insurance, they are protected against floods, but that’s not the case.
To be protected in the case of damage caused by floods, you need it as an additional policy. Read more about flood insurance here.
Solid homeowners insurance policies also cover things like theft and vandalism. Check out the best & worst home insurers.
4. Auto insurance
Because every state requires it of drivers, auto insurance is a must-have behind the wheel. If your vehicle’s already paid for, you’ll have to decide whether to get comprehensive & collision coverage or just liability.
Whats the difference between comp & collision and liability insurance?
The difference between comprehensive & collision and liability insurance is that the latter typically only covers damage to the other driver’s vehicle.
A comprehensive policy covers your vehicle regardless of who’s at fault.
Money expert Clark Howard has long talked about the merits of Amica Mutual and USAA for auto insurance, but those aren’t the only two companies you should look at.
Consider buying a one-time subscription to Consumer Reports and checking their latest list of the best auto insurance companies to find others that should make it onto your shortlist.
Clark says that he is a huge fan of insurance being paid by the mile. Some insurance companies are beginning to track your driving and link your premium’s cost to it.
Here’s what he says on is podcast: “I really like the idea of someone who doesn’t drive very much paying less for auto insurance and someone who drives a ton paying more for auto insurance, and somebody who drives like a crazy person paying more than somebody who is extra-extra-cautious behind the wheel.”
If you’re in the market for auto insurance, take a look at the best and worst insurers out there.