Understanding 16 Basic Types of Insurance
When the majority of people think of kinds of insurance, auto or home coverage springs to mind. The diverse insurance industry offers a multitude of types of coverage though. It even offers a type of insurance for insurers, called reinsurance.
This article provides a quick rundown on the 13 top categories of insurance coverage. We say categories because some insurance types, such as commercial, offer more than 25 policy types, from glass insurance to workers’ compensation coverage. Sometimes, as with insuring automobiles, the industry refers to them separately, such as auto, RV, motorcycle, classic car, and toy. Let’s dive into the many kinds of insurance you might need.
Of all the kinds of insurance, auto insurance becomes the first that most people purchase for themselves. As a teen obtaining a driver’s license, most U.S. citizens purchase this type of policy. Federal law requires insurance coverage of every driver on the roads, but each state sets its minimum coverage requirements and the penalties for driving uninsured. Because each state varies in requirements, when a person moves from one state to another they must obtain new insurance coverage.
If you ask the average person, they will tell you that their car insurance pays for auto body repairs if the car gets damaged, but that only happens if they buy more than the minimum coverage. The minimum coverage in most states only requires liability insurance in the forms of bodily injury and death coverage and property damage coverage. A few states also require uninsured motorist coverage, which protects you if the person at fault for an accident in which you’re involved did not carry insurance.
The liability coverage each state requires covers the auto repair services and medical care of the person you injure in an accident you cause, up to your policy limits. Most states keep their policy limit requirements pretty low, so residents can afford the coverage. That’s why insurance agents typically encourage policyholders to increase their coverage.
To fully cover your own vehicle and medical needs, you would need to add a few other coverages to the minimum policy requirements of bodily injury and property damage. You would need collision coverage, comprehensive coverage, personal injury protection (PIP), and roadside assistance. Some states don’t offer PIP but do allow a different type of medical coverage.
Collision covers damage to your own vehicle, whether you caused the accident or something else did, such as a deer running out in front of your car. Wildlife notoriously fails to carry insurance coverage. Comprehensive coverage insures your vehicle against damage from a natural or human-induced peril, ranging from tornados to vandalism. It also covers theft.
Although full coverage costs more, weigh the small expense of a monthly premium against the larger expense of replacing or repairing your vehicle. Consider skipping full coverage if you own an older vehicle and could replace it by buying the same make, model, and year for less than a few thousand dollars and you could afford that expense without a loan. If you purchased a new vehicle in the past five years though, go for full coverage, so you don’t have to pay two auto loans at one time.
In adulthood, when you become a homeowner, you must purchase homeowners insurance. Temper your excitement when you find a new home with the knowledge that you must qualify for a mortgage and, as a part of that mortgage, purchase a homeowners insurance policy. Of all the kinds of insurance, this might be the most misunderstood.
Homeowners insurance belongs to the larger category of home insurance, which includes:
- condominium insurance
- renters insurance
- mobile home coverage
- historical home insurance
- homeowners insurance.
Each type of home requires its own type of insurance, so you can’t buy a homeowners HO-3 policy for a condo. You must buy condo insurance.
Insurance for homeowners comes in four coverage levels. HO-1, HO-2, and HO-8 all refer to the named peril policy, which means that they only cover the exact perils named in the policy. An HO-3 policy covers all perils, even damage caused by things not yet invented. Insurance agents typically suggest HO-3 coverage, so you receive maximum financial protection against anything that might happen to your home.
When you contract with a custom home builder to construct a new home, you also need a special type of home insurance. Builders insurance covers a home while under construction. You then transition to a traditional homeowners policy once the builder finishes the home and you move in.
Similarly, you will need builders’ insurance when you construct home additions. Upon finishing the addition, update your homeowner’s policy to cover the increased square footage. Each homeowner’s policy covers the home as originally constructed unless you update the coverage.
Another of the kinds of insurance most individuals know well, medical coverage, varies widely. Some schools offer group plans for their students and the medical coverage of most adults lets them add immediate family members. This insurance ranges in what it covers and most don’t cover healthcare equipment unless you add a rider to the policy, which adds a few dollars per month to the premium.
In the U.S., the federal government requires employers to provide healthcare coverage for each of their employees. This coverage must adhere to specific coverage requirements. The insured can add to the coverage by purchasing added coverage and paying a premium.
Medical insurance includes many types of coverage, such as dental and vision, which we’ll discuss separately. Most people have heard of Medicare, the government’s insurance program for older adults. This program provides free insurance coverage for hospitalization, but the individual must pay for coverage for medical visits and prescription coverage.
Medical insurance doesn’t typically include medical waste disposal in a basic plan. That’s something that requires a rider, also called scheduling a coverage item. Your insurance agent can help you add riders to cover many specific services and treatments.
Dental insurance covers your annual trips to the dentists office and teeth cleanings. It also offers reduced rates on many necessary services, such as crowns, bridges, and dentures. Some policies cover braces or Invisalign, but this depends on the insurance policy and level of coverage.
When you change jobs, quit your job, or retire, your insurance policy may change. If you already have a family dentist and don’t want to change doctors, you will need to find an insurance policy that your dentist accepts. Visit the Health Care Marketplace for a simple way to shop for this insurance.
Another type of medical insurance, vision coverage, typically covers an annual checkup and a pair of corrective lenses. Not all vision coverage does this. Some policies only cover specialty treatments like laser surgery. Meet with an insurance agent and discuss your needs to quickly find a policy that meets them.
The category of commercial insurance includes more than 25 kinds of insurance. Small and mid-sized businesses typically obtain a business owners’ policy (BOP), which provides the four most common coverage types in one package for a reduced premium rate. A BOP includes:
- Business property coverage
- Business interruption coverage
- General liability insurance
- Perils coverage.
Not all businesses qualify for a BOP, but those that do not can purchase each policy separately.
Other types of commercial or business insurance include glass coverage for plate glass windows and mirrors, medical malpractice insurance, boiler coverage, commercial auto, and a slew of others. The diversity within commercial insurance means that you can’t obtain a quick quote for it online. You will need to consult with an insurance agent to discuss your business and its coverage needs. This ensures that each business only pays for relevant coverage types.
You can add umbrella coverage, a type of secondary insurance, to any policy that includes a liability component. For example, you purchase an auto policy with $50,000 of liability coverage per accident total. If an accident occurs that you cause, your liability insurance pays out up to $50,000 for all those injured. If people’s injuries totaled $100,000, without umbrella coverage, you pay the other $50,000 out of pocket, but with it, insurance pays it all.
Motorcycle coverage falls into the automotive kinds of insurance category. Like auto coverage, each state sets its minimums. At present, all states use the same motorbike requirements as for autos. The required insurance only covers damage you might cause to another person’s vehicle or person, so go for full coverage to protect your motorcycle.
Also among the automotive kinds of insurance, RV policies cover any of the three classes of motorhomes and trailers. Each state applies its auto insurance requirements to this insurance type, so your policy will need to at least meet the same requirements as your car insurance. If you travel in or live in your RV at all times, you need a full-coverage policy called full-timers that provides added liability and property coverage.
10. Boat and Other Watercraft
No state requires boat insurance, but if you own a boat, you should carry this policy. It provides liability coverage, so if you cause an accident, the property damage and medical costs don’t come out of your pocket. Add other coverage, such as personal property, to protect your radar, computer, or other types of boating equipment. Your other watercraft don’t need other kinds of insurance because you can add jet skis, Seadoos, and other small crafts to the policy for your large boat, such as a speed boat, skiff, yacht, or sailboat.
Of all the kinds of insurance, wedding coverage might be the most fun to buy. Needing this policy means you found your forever someone. This insurance policy provides financial protection for your big day, so if the caterer cancels at the last minute, you don’t lose that money and can afford to hire another caterer. It covers rain on your outdoor wedding that causes extra costs, photographer cancelations, lost wedding party gifts or wedding rings, and much more.
12. Classic Car
Classic, antique, vintage, and customized vehicles can qualify for an automotive insurance type called classic car insurance. It works almost exactly like auto coverage except that you agree to drive the vehicle only 1,000 miles per year. Agreeing to this nets you lower premiums than typical auto insurance. Classic car policies automatically provide full coverage and they pay for replacement coverage, meaning you get a check from the insurance company that lets you go purchase the same make, model, and year of vehicle.
Nope, toy insurance does not mean kids toys. Instead of covering Yoyos and Monopoly games, toy insurance covers grown-up electronic and motorized toys, such as dune buggies, ATVs, dirt bikes, and go-carts. Regardless of whether it uses gas, diesel, electric, or solar power, any motorized off-road-only conveyance falls under the guise of toy insurance. Choose liability and personal property coverages for the best results, but add PIP if your state allows it.
All those life insurance commercials on TV tell the truth about this type of insurance being a true need. Life insurance policies range from burial coverage to multi-million dollar policies that provide for your loved ones in the event of your death. Choose the coverage you need by consulting with an insurance agent or an estate planner.
15. Accidental Death and Dismemberment (AD&D)
Accidental Death and Dismemberment (AD&D) coverage rides the fence between medical policies and life insurance. It covers situations of both scenarios. AD&D only pays out if you either die in an unexpected accident (not a suicide) or if an accident causes your dismemberment, such as losing an arm, hand, foot, leg, or eye. Employers often add this coverage to their group benefits plans to offer enhanced coverage to their employees.
16. Pet Insurance
Of all the kinds of insurance, this makes people say, “Aw!,” the most. Pet insurance covers your pet’s medical emergency care, and some policies also cover annual veterinary checkups. If you adopt a dog, cat, bunny, chinchilla, or some other animal, pet insurance can ease the burden of care costs as the pet ages. Some policies also cover prescriptions and surgeries.
What insurance do you need?
Perhaps you own a car and a home; the required insurance for them makes things simple. Consult with your insurance agent to determine which other policies you need. When you purchase all policies from the same company, you receive a hefty discount, typically between five and 25%. The discount makes it easier to afford the insurance policies you really need.