Over the course of your life, you’ll likely be encouraged to sign up for all kinds of insurance policies, from “Grow-Up” life insurance for newborns to longevity insurance as you get older. In between, you’ll be given the option to buy coverage on everything from cell phones to your wedding.
But which policies should you buy?
This article is going to go over the four insurance policies that money expert Clark Howard says you actually need.
Clark is not a fan of most insurance offerings. He says people could save money if they were more judicious about the things they insured.
“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.
“You should never insure something that is a consumer item,” Clark says. “People always worry about insurance on narrow things instead of the big things in life they really need it on.”
Here Are the Insurance Policies You Really Need
The four primary insurance policies Clark says you absolutely do need are health, life, homeowners (or renters) and auto insurance. Let’s discuss each one:
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.
When it comes to health insurance, one of the main things you may need to decide is whether to open a health savings account (HSA) or flexible spending account (FSA).
Both HSAs and FSAs let you use tax-free dollars to spend on your healthcare needs, but they differ in important ways.
What’s the Difference Between an HSA and FSA?
The main difference between an HSA and FSA is how long you have to spend the money in the account. With an HSA, your money rolls over and this accumulates year after year. In contrast, FSA funds are lost if you don’t use them by year’s end. However, some companies let you roll over a small portion of your FSA.
Resources: Ways to Save Money on Health Care
2. Life Insurance
Life insurance is something you need if you have people who depend on your income. There are a lot of options out there — some better than others.
The type of life insurance Clark recommends is term life insurance, which requires you to pay a fixed rate for coverage for a certain period of time.
What’s the Difference Between Life Insurance and Accidental Death Insurance?
The difference between life insurance and accidental death insurance is that the latter pays out only if the insured’s death is an accident. Therefore, it is more limited than life insurance.
“If you have life insurance, you don’t need accidental death insurance and that other stuff,” Clark says. “What does it really matter how you die when you’re dead?”
Resource: The Best Term Life Insurance Companies
3. Homeowners or Renters Insurance
A home insurance policy is a necessity for most homeowners. And Clark says the policy you buy should not be just about the premium. This kind of policy is for use only in a catastrophic situation, so it’s crucial to have the best coverage in case something does happen.
If you are a renter, landlords are not responsible for your belongings so you almost always need renters insurance. A policy will usually cost less than $20 a month and can be a big help if your belongings are stolen, damaged or destroyed.
4. Auto Insurance
Because every state requires it, auto insurance is a must-have. When it comes to shopping for car insurance, one of the ways you can save money is to pay attention to your deductible.
Why You Should Always Choose a $1,000 Deductible
Clark says you should always opt for a deductible of $1,000. Not only will you pay a lower premium, but that amount is high enough to stop you from filing claims for small things that you should pay out of pocket to repair. That’s because each claim you make could raise your rate. Read more about that here.
Resource: Best and Worst Auto Insurance Companies
As a recap, the four primary types of insurance you need are:
- Health insurance
- Life insurance
- Homeowners or renters insurance
- Auto insurance
As with any purchase you make, always shop around for the best rate you can get.
“As far as who you’re insured by, you need to call around, shop around or use an independent agent,” Clark says. “Use his or her shopping ability to find an insurer for yourself.”