10 Different Types of Insurances and What They Cover
In each person’s life, the types of insurance they own differ depending on their lifestyle and the property they own. Two neighbors may both own home insurance policies, but one owns a renters policy, while the other owns a homeowner’s policy. Every U.S. state requires drivers of any kind of motorized, road-worthy conveyance to purchase auto insurance meeting minimum requirements, but each state requires different levels of coverage. The diversity within insurance makes it challenging for many individuals to know which policies at which levels they need to adequately protect their finances.
That’s the job of insurance; it protects the policyholder from needing to pay out-of-pocket for repairs, replacement property, legal settlements, lost salary/income, etc. Although hundreds of types of insurance policies exist, most fit into 10 neat categories. In this guide, we explore the 10 most common kinds of insurance purchased in the U.S.
Auto insurance includes many specialty types, including automotive, classic/vintage car, motorcycle, RV, and truck insurance. The latter type refers to a kind of business insurance that comes under commercial automotive policies. Some insurance agencies classify toy insurance, which covers motorized toys, such as dune buggies and ATVs, under auto policies, but we provide it with its own category.
As mentioned, every state requires auto coverage for drivers on its roads. This minimum coverage typically consists of two kinds of liability coverage – bodily injury/death and property. These types of insurance cover the settlement paid to others involved in an auto accident that the policyholder causes. The state-mandated coverage does not usually cover car repair shops for the policyholder’s own vehicle.
Auto coverage to cover the policyholder’s vehicle requires adding comprehensive, which covers theft and natural hazards, and collision coverage. Covering their own medical injuries takes adding personal injury protection (PIP) or other medical coverage. In the insurance industry, they refer to an auto policy package containing all of these coverage types as full coverage protection.
When purchasing any kind of street-legal motorized conveyance, whether from an auto, motorcycle, or RV dealer, the buyer must obtain appropriate insurance coverage to legally operate it. That means, the buyer needs to already own an automotive insurance policy that covers that specific type of vehicle:
- Auto insurance for any kind of car, personal truck, SUV, etc.
- RV insurance for a Class A, B, or C RV
- Motorcycle insurance for a motorcycle or trike
- Classic car/vintage car insurance for any antique or unique vehicle.
This means that some policyholders purchase more than one of these types of insurance, such as an auto policy and a motorcycle policy.
Many pet owners purchase pet insurance policies to help cover the medical care expenses of their fur child. Of all the types of insurance, this one became popular in the past two decades, while others have long existed. Caring properly for a pet – whether a cat, dog, pot-bellied pig or another type – takes annual veterinary visits and emergency care. Life as a pet parent can take some odd twists and turns, so pet insurance helps cover those medical expenses, which can approach the same costs as human ones.
Pet coverage covers more than vet visits. It also pays for after-care, such as visits to a pet physical therapist. Outdoor pets especially can injure themselves in fights with other animals and other events, so that makes a good fence around a yard and pet insurance two wise investments.
The category of home insurance includes homeowners, renters, mobile home, historical home, condo, and tiny house policies. In general, home insurance covers physical damage to the home from perils. Some policies also offer liability coverage and personal property coverage.
The type of home a person owns determines which type of ownership policy they purchase. If a homebuyer purchases a single-family home, they purchase homeowners’ insurance at one of three levels – HO-1, HO-2, or HO-3. Both the first and second levels cover only named perils, those specifically described in the policy. HO-3 policies cover all perils and provide liability coverage.
Perils refer to natural or human-induced hazards, such as tornado or arson. If a home incurs roofing hail damage, a home policy that covers hail damage pays for the repairs or reimburses the homeowner for their repair expenses. Liability coverage pays the medical costs or settlement of an individual injured at the policy owner’s home, such as someone falling down stairs and spraining their ankle. It also covers libel and slander settlements if the homeowner loses a court case when accused of either.
Owners of mobile homes can only buy mobile home coverage, just as condo buyers can only buy condo coverage. The newest type of home coverage, tiny house policies, requires the homeowner’s house to measure 400 square feet or less in size. While each of these types also covers the cost of a general contractor and materials to repair damage covered by the policy, no insurance policy covers optional home changes.
Those homeowners interested in home remodeling must pay out of pocket to make their upgrades. No type of home policy covers these changes. Whether remodeling or renovating, home insurance only covers perils repairs.
Finally, we come to renters policies. Renters insurance only covers the contents property of the renter and their liability. The landlord’s homeowners policy covers the house, condo, mobile home, apartment, etc. The renter’s policy only covers what they own that they bring into the home, such as furniture, clothing, electronics, etc.
At one time, health insurance, also called medical insurance, proved as complex as home insurance. In the 21st century though, the Healthcare Portability Act simplified things by making health insurance available to everyone. Employers must provide a minimum level of healthcare coverage to their employees as a fringe benefit. Unemployed individuals can apply for Medicaid coverage, while the self-employed purchase their own in the healthcare marketplace.
Retired individuals apply for and receive Medicare, which provides hospitalization coverage (Part A) for free. The Medicare program also includes other types of insurance, called parts. Part B covers doctor visits, such as checkups. Part D covers prescription drugs. Whether a policy under Medicare or purchased privately covers items like vascular surgeons depends on the policy.
Pretty much no health insurance covers anti aging treatments, like Botox, but some individuals do receive Botox treatments covered by their health insurance. The drug has many FDA-approved uses, including as a migraine headache treatment. If a policyholder wants to have elective surgery that qualifies as cosmetic surgery, they typically pay out-of-pocket.
Another types of insurance with a vast variety, life insurance, varies from policies that cover only funeral services and burial to those that provide large payouts called death benefits to the policyholder’s beneficiaries. Some policies provide added benefits, such as a savings or investment account. The major variants of life insurance include:
- Burial insurance/funeral
- Term life
- Whole life
- Universal life
- Survivorship life/joint life
- Mortgage life
- Credit life
- Supplemental life
Most people choose term life until they reach the age of 40 years, then they transition to a whole life policy.
Term life policies cover a finite number of years, such as 10, 20, or 30 years. If the policyholder dies within those years, the policy pays a death benefit to the named beneficiary. Term policies cost less in premiums than whole-life policies. They remain in effect as long as the policyholder pays the monthly premiums.
Whole-life policies also remain in effect as long as the policyholder pays the monthly premium. A whole life policy covers death at any age, not during a specific term. It also pays a death benefit to the named beneficiary.
Some life insurance policies let the policyholder pay the premium all at once. A cash value policy provides both a death benefit and a savings or investment account that a part of the monthly premiums goes into pre-tax. That means the money going into the savings account goes in before the government charges taxes on it from the person’s paycheck and that they do not pay income tax on it while it accrues. The individual only pays income tax on the money when they withdraw it for spending.
Commercial policies include numerous types of insurance, ranging from commercial auto to business interruption coverage. Commercial policies exist that cover the boiler and other building operations equipment, the plate glass windows, the building structure, the office equipment, and the employees’ wellbeing in the guise of workers’ compensation insurance, which gets its own section in this article. More than 25 kinds of common commercial insurance abound and ancillary coverages that only a few businesses need bring the total of business insurance types above 50, some estimates say 100.
Businesses don’t purchase a one-size-fits-all policy because each business needs different coverage. For instance, a doctor needs malpractice coverage, while a pizza delivery restaurant needs commercial auto coverage. A football coach purchases business liability and umbrella coverage, but a retail store owner needs business interruption, glass, and general liability coverage. Because every business differs, policy owners undergo an interview with their insurance agent, who asks specific questions about the nature of their business, and then creates a custom policy quote.
As businesses grow and scale, so do their insurance policies. Moving to a new building, hiring staff, purchasing fleet vehicles, etc. all create new insurance needs. Owners of business policies typically undergo an annual policy review to ensure they still have adequate coverage.
7. Workers Comp
Although most commercial insurance remains optional, business owners with employees must purchase workers’ compensation insurance to legally comply with federal and state laws. This type of insurance pays the employee’s medical care and partial salary if they incur an on-the-job injury or illness. Employers must provide this coverage in addition to the health insurance mandated by the Healthcare Portability Act.
The workers comp program encourages employers to not only meet but exceed Occupational Safety and Health Administration (OSHA) requirements. The Administration creates codes for each industry and businesses within that industry must meet those requirements or pay fines. For example, manufacturing and construction businesses must provide an OSHA compliant fall protection solution.
While most types of insurance related to motorized travel come under auto insurance, water-born conveyances, such as boats, jet skis, and Seadoos, require boat insurance. A boat insurance policy covers the watercraft itself, liability, and personal property on the skiff. Most boat owners choose full coverage, but an insurance agent can help a boat owner create a custom policy.
Toy insurance does not refer to children’s toys, but to motorized vehicles intended for recreation only. It covers vehicles like dune buggies, all-terrain vehicles (ATVs), go-carts, etc. These small vehicles require coverage similar to that of an automobile, especially liability coverage.
As fun as these recreational vehicles can be, their riders sometimes become involved in serious accidents. The policyholder’s liability coverage pays for the medical care and settlement costs of the injured person, up to the policy limits. Many owners of these types of toys also insure them with comprehensive and collision coverage, so they can repair or replace the damaged vehicle without paying out-of-pocket.
The final type of insurance we’ll cover, umbrella insurance, many people don’t know about. This type of secondary insurance requires the policy owner to first buy a primary policy that includes liability coverage. Umbrella coverage adds liability coverage over and above what the primary policy provides for a low-cost premium.
A primary policy could be home, auto, boat, toy, pet, or commercial liability. For example, a policy owner of an auto policy purchases coverage at the maximum liability allowed by their carrier – $250,000. They also purchase an umbrella policy for $1 million. In the event of an accident that they cause, their auto insurance pays out to the injured individuals first with a maximum of $250,000. If the medical costs of those injured exceed $250,000, the umbrella policy kicks in and pays the remainder, up to $1 million.
Get the Right Insurance
When an individual needs insurance coverage, choosing the right policy type means everything. So does purchasing the right level of coverage. Let this insurance article help guide each policyholder’s choices.