With the many types of insurance policies available it can be difficult to figure out what the most important insurance policies to have really are. You can over-insure yourself, so what should you really focus your insurance money on? Here are the five most critical insurance policies most people should have.

Renters or Homeowners Insurance

You first want to cover the place you live and the items it contains. If you are renting there’s no excuse to not get a renter’s insurance which can normally be had for less than $20 per month.

Likewise if you own a home (or have a mortgaged property) you need to have homeowners insurance. Your mortgage lender won’t lend to you if you are not covered by a homeowners insurance policy. If you ever stop paying your mortgage the bank will buy homeowners insurance for you because they don’t want to risk losing the asset (your home) to a disaster such as a fire.

Automobile Insurance

Once you’ve covered your residence, you need to insure your way to and from work. If you live in a big city with public transportation and you don’t own a vehicle, you can skip car insurance. Otherwise you need to have at least the state required minimum for insurance coverage on your vehicle, preferably more. This way a simple accident won’t ruin you financially as you won’t be 100% responsibility for the liability claim.

Health Insurance

Even though it can be expensive, going without health insurance is never a great decision. You can be in perfect health and still find yourself in the hospital due to an accident. You never know what might pop up in your personal health, and healthcare costs are only going to continue to rise. Risking having to pay for everything out of pocket can quickly lead to bankruptcy. If you can’t afford a traditional health insurance policy, consider getting catastrophic coverage with a high deductible health plan.

Disability Insurance

You might expect life insurance to be next on our list, but it isn’t. You have a 1 in 5 chance of becoming disabled in your lifetime. While dying isn’t exactly fun to think about, it is a definite end with a limited amount of cost. If you become disabled at age 35 you may have 60 years of life left that needs some sort of income to pay for. That’s why disability insurance is more important than life insurance. You may have coverage from your employer, but check the policy. It may only pay 60% of your base salary — if you earn a lot of your income through bonus or commission you may not have enough coverage.

Term Life Insurance

Finally, the last piece of critical insurance you should have is life insurance. While you do have a 20% chance of becoming disabled, you have a 100% chance of dying. Your need for life insurance will change throughout life. When you are first starting out and have a growing family an untimely death can be devastating from a financial perspective. This is where life insurance has the most benefit. As you get older and your kids leave the house — and hopefully your retirement nest egg gets stronger — your need for life insurance goes down. That’s why we love term life insurance. You purchase life insurance for the term that works for you. Once that term runs out you still might need insurance, but maybe not as an expensive policy as you did in your younger years. With term insurance you can adjust to the policy that works best for you.

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