Types of insurance you can't do without

Insurance is like a life jacket. It's a bit of a pain when you don't need it, but when you do, you're more than grateful you have it. Without it, you could have a car accident, illness, or house fire by drowning, not in the sea but in debt.

For something so important to our financial well-being, insurance is a complicated, if not uncomfortable, subject. That's why we've narrowed down your options to the eight types of insurance policies you can't live without.

While each is essential, you should consult an independent insurance agent to find the right types of personalized insurance to meet your needs.

Find out below how these can help you and your family!

1. Auto insurance

Never drive without insurance not only because it's against the law, but also because the Insurance Information Institute reports that the average loss in auto claims is around $4,900. Imagine having to pay this amount out of pocket! When it comes to auto insurance, there are several options available to you. There is, therefore, no reason to do without:

Liability insurance. If you are at fault for an accident, your liability insurance will cover the cost of injury or property damage caused by the collision. Minimum coverage is required in most states. So contact your insurance agent to understand the basic requirements.

Collision protection. This covers the cost of repairing or replacing your car if it is damaged or destroyed in an accident.

Full coverage. This level of insurance covers your losses that were not caused by an accident such as theft, vandalism, flood, fire, and hail.

Again, an insurance agent is a good resource for determining the level of protection you need based on the type of car you drive.

2. Home / tenant insurance

Make sure your home insurance policy includes extended home coverage. Extensive home coverage provides additional protection beyond the limits of your policy.

With extended home insurance, the insurance company will replace or rebuild your property even if the cost exceeds your insurance coverage. However, there is a limit to the amount you will pay, usually 20-25% more than the amount you are insured for unless you opt for higher coverage. Remember that the higher the value of your home, the more it is necessary to extend home coverage.

Another note about home insurance: check with your agent what your policy does and what doesn't. 

Flood insurance. Most homeowners don't know that flood insurance is excluded from their contracts. Flood insurance is also different from water protection. Ask your agent to discuss the details with you.

Seismic coverage. Depending on where you live in the country, earthquake coverage may not be included. If you need it, contact your agent to lock it.

If you are a tenant, you are not exempt from insurance liability. Without tenant insurance, it's up to you to replace your belongings if they are lost in a fire, flood, theft, or another disaster. A good independent insurance agent can walk you through the steps to cover the basics of home and tenant insurance.

Remember, when you have all of your emergency funds, you can have a higher deductible and lower your insurance premium to save money.

3. General guidelines

Flat-rate insurance is a type of insurance that gives you and your assets extra protection when you need coverage that exceeds the limits of your home or auto insurance. For example, if you're responsible for an accident involving multiple vehicles, medical bills and property damage can quickly add up to more than your auto insurance coverage. If you are sued for the difference, your savings, your housing, and even your future salary could be at stake.

You can protect yourself against such a situation with general liability insurance. In fact, Dave recommends a fixed-rate policy for anyone with a net worth of $500,000 or more. For a few hundred dollars a year, flat rate insurance can cover your liability insurance.