5 Insurance Policies You Can't Do Without

Advice on the five kinds of insurance the average consumer needs.

Buying and maintaining sufficient insurance coverage is as important to your long-term financial security as contributing regularly to retirement plans and spending judiciously once you've retired.

A single gap in insurance coverage could wipe out many years of hard-earned savings. That's why it's crucial to give yourself an annual insurance checkup, whether you buy your policies through an agent or from one of the growing number of insurance companies that sell coverage directly to the public.

Disability. Your chances of becoming disabled before you retire are far greater than your odds of dying. So every working person needs some kind of disability coverage. The better policies will replace up to 66 percent of your salary and will pay benefits to age 65. If you are working for an employer who offers less than that, ask if you can pay to upgrade your coverage. Buying an individual policy to supplement employer coverage is another option, but it's usually an expensive one.

Health. Before selecting a policy from your employer or deciding among Medicare options, review your current health, anticipated medical needs, and family status. For example, if you recently became single or an empty nester, your insurance needs may have changed. This review should help you avoid a plan that fails to cover a necessary treatment or paying for services that you know you'll never use.

Homeowners or renters. Make sure you have replacement-cost coverage that would pay the current costs of rebuilding your home and replacing your personal possessions. A policy that would only pay for the depreciated value of these items isn't good enough, because you could end up recovering just a fraction of their costs. Don't overlook flood and/or earthquake insurance (which are not part of standard homeowners policies) if you live in a locale that's prone to these types of disasters.

Life. Empty nesters and retirees may no longer need life insurance at all. But if you have dependents who would suffer financially if you died, it's still a must. And that doesn't mean just insuring wage earners but also stay-at-home spouses. Term insurance is usually a lot cheaper than the cash-value kind, but shop around, since premiums can vary widely.

Umbrella liability. While you have some liability coverage in your homeowners or renters and auto insurance policies, it's probably not enough to truly protect your savings from today's enormous lawsuits. Instead, buy at least $1 million of umbrella liability insurance that will reimburse you (up to specified limits) for the costs of most legal entanglements that you and your family may encounter. For moderately affluent individuals and families, $2 million may be a better number. It doesn't cost much, as insurance goes, and it's well worth the price.

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