Choosing the Insurance You Need

There are many kinds of insurance. How do you decide what kinds of insurance are the most important for you?

If you own a car, state law says you must have auto insurance. If you have a mortgage, the lender will require you to buy insurance on the house.

You should also insure things that could cause real financial problems or bankrupt you. You might need insurance if something valuable is destroyed or taken away. It might be your home, your car, or your ability to work. What if you are responsible for someone else's pain or injury? Insurance could pay for those injuries. It would keep you from losing the things you own and using your income to pay that debt. This is liability insurance.

This is a list of things that many people buy insurance for. Which ones could cause money troubles for you?

Death. If you work and your child or someone else depends on your income, you may need life insurance.

Medical bills. Are you covered by Medicaid? If not, a bad illness or injury could result in large bills. Finding a job that provides health insurance is the most affordable way to get it.

Disability. When you are disabled, you lose your income and you probably have higher medical bills. If you work to support yourself or your family, you may need disability insurance.

Auto accident. If you own a car, you must have liability insurance. It is your choice whether to insure damage to your own car. You may want much more insurance than the state requires. It may not cost much more than the minimum coverage.

Damage to your home and belongings. If you own a home, you need insurance to replace or repair the house in case of a fire or other accident. It will also help replace furniture and clothes. Liability insurance is included. If you rent, a renters policy will also help to replace your things and provide liability insurance.

Some kinds of insurance are not that useful. Or they cost too much. You may not want these kinds of insurance.

Cancer policies or critical illness insurance. Buy a regular health insurance policy instead. It will pay your medical bills regardless of the kind of illness you have.

Small life insurance policies often sold door-to-door. The salesman may come each week or month to get your payment. You can probably buy a much bigger policy for the same payment if you call a few different companies.

Funeral insurance. Plan your funeral, but save up the money and put it aside instead of buying insurance.

Long term care insurance. Nursing home care is expensive. But Medicaid will probably pay for it if you have little income and few assets. You might have to use most of your money before Medicaid would start paying for your care. You should only buy this insurance if you have enough money for the premiums and you have enough assets to protect.

To learn more about how to handle the risks you face, visit Is Your Financial Security at Risk?

Prepared by Karen Chan, Consumer and Family Economics Educator, University of Illinois Extension.

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