With so many types of insurance and coverage, things can quickly get confusing. Learning about the main insurance categories to consider and how much coverage you should get to protect yourself, your loved ones, and your assets.

Insurance is an incredible feat of our financial systems that allows us to sleep easily, knowing that no matter what happens, our loved ones and assets are protected. With modern insurance policies offering coverage for nearly everything, you can quickly get confused about how much insurance you should have.

We review the most important insurance categories to consider. Before starting it’s recommended you must remember that coverage varies from policy to policy. You should always consult your insurance agent and thoroughly read the policy to fully understand its coverage.

Life Insurance

Life insurance policies vary greatly. The amount you need depends on you, but the idea is to replace your income completely, or for a specified period. It could be till you or your spouse retire or till your firstborn completes college. It’s different for everyone. You should also consider factors like mortgage payments, car payments, student loans, etc.

Replacing your income may take up a big chunk of your monthly expenses. Term life insurance policies can be a decent alternative, especially if you are young. They are inexpensive and provide coverage for a limited period at a fixed rate of payments.

Health Insurance

Regarding health insurance policies, deductibles aren’t your only concern. You should consider the maximum out-of-pocket as well. If you can afford the monthly payments of a health insurance policy, make sure that you can cover the out-of-pocket maximum from your savings or liquid reserves.

Health insurance policies can tend to be more complex. Knowing your capacity to cover out-of-pocket will help you understand how much health insurance you should have.

Auto Insurance

The state minimum coverage is a starting point for auto insurance. It covers the basics, including the car, and is just right for young adults with little to no assets. However, as an asset-holding adult, you want sufficient auto insurance to protect your assets if someone sues you for an accident you caused.

More coverage means less chance of the plaintiff going for your personal assets. Ideally, you want your auto insurance policy to cover the equivalent of your personal assets.

Homeowner’s Insurance

Homeowner’s insurance is quite complex and determining how much you need depends on many different things, including your property and belongings. For example, a guaranteed replacement cost policy will cover the complete cost of rebuilding your home in case of total loss. However, it will not cover the land cost because land cannot be “replaced.”

The homeowner’s liability also protects you if someone gets injured on your property and decides to sue you, whereas contents coverage covers the belongings in your home. You should also consider a homeowner’s insurance policy that considers inflation and adjusts coverage levels accordingly.

Renter’s Insurance

Renter’s insurance protects the contents of your rented home in case they are stolen or damaged. Remember that the landlord’s homeowner’s insurance will not cover your assets if something like a fire or a break-in occurs.

Create an inventory of your belongings, especially high-value items, to understand how much coverage you need from your renter’s insurance. This type of policy is relatively easy to secure and doesn’t cost much.

Pet Insurance

If you have a cat or a dog, you should consider pet insurance, especially if they are old. It works similarly to how health insurance works for humans. Pet insurance is good to have in case your pet needs surgery, which can be quite expensive on its own.