Indeed, insurance might not be the most exciting topic for individuals to discuss. However, it's a necessary one for them to consider. When individuals forgo purchasing insurance, it can have a life-altering impact should the needs arise where they wished they'd purchased it. Insurance helps reduce the financial burden related to maintaining health and well-being and mitigating costs associated with accidents, liability, and death.
Outlined below are seven common types of insurance for small businesses to offer individuals and families that come to them for their insurance needs.
1. Health Insurance
Health insurance mitigates costs for illness, injuries, and accidents. It's not uncommon for medical expenses from a catastrophic event or chronic illness to be so great that it leads many to declare bankruptcy. Even standard medical costs and doctor visits are costly and difficult for many to afford. Two in five adults report having had difficulty paying for health care, with over 60% indicating medical costs as a source of stress.
Most employers offer some level of health insurance to employees, typically sharing the cost of coverage. Private insurance can be costly, though affordable plans and tax breaks are available through the federal and state marketplaces. Though the most common health insurance people think of is medical insurance, dental and vision insurance are also health-related benefits that fall under the health insurance category.
There are several types of medical insurance available. The most common are preferred provider organization (PPO) plans, health maintenance organization (HMO) plans, and high deductible health plans (HDHPs).
Health Maintenance Organization (HMO) Plans
HMO plans are co-pay plans that typically require participants to select a primary care physician (PPC). HMOs have a deductible that needs to be met before coinsurance takes effect for most expenses and comes with an out-of-pocket maximum. HMOs only cover expenses related to in-network providers.
Flexible spending accounts (FSA) are typically offered alongside traditional co-pay plans. An FSA is a taxed advantaged plan that can be used to pay for qualifying medical expenses. The IRS sets annual contribution limits.
Preferred Provider Organization (PPO) Plans
PPO plans are co-pay plans that are very similar to HMO plans. The key difference is that they will cover out-of-network provider expenses, whereas an HMO will not. In-network provider expenses are covered to a greater degree than out-of-network expenses.
High Deductible Health Plans (HDHPs)
HDHP insurance comes with a high deductible, as the name implies. For a plan to qualify as an HDHP, a deductible has to be $1350 or higher for an individual and $2700 for a family. Employees typically need to meet the deductible of an HDHP before the co-sharing aspect of the insurance comes into play. Like a PPO and HMO plan, common services covered included lab tests, office visits, and prescriptions. Some HDHP insurance will cover out-of-network costs at a lower degree than in-network costs, and some will not cover out-of-network costs at all.
To help offset the up-front cost of high deductibles, HDHPs are often accompanied by a health spending account (HSA). An HSA works like an FSA as a tax-advantaged spending account to cover qualified medical expenses. Unlike FSAs, HSAs allow employers to contribute to the plan and do not have a "lose it or lose it" clause. Once the money is deposited in an HSA, it is the employees to keep, even if they do not remain employed with the company.
Dental and Vision Insurance
Dental and vision insurance are much less costly compared to medical insurance. Standard dental insurance typically covers two check-ups per year, cleanings and x-rays at 100%, and a portion of other services, like fillings and crowns. Standard vision insurance covers annual check-ups and a part of necessary eye care prescriptions, like glasses and contacts.
Like medical insurance, dental and vision insurance often have a deductible, and in-network providers are covered to a higher degree than out-of-network providers.
2. Disability Insurance
There are two main types of disability insurance—short-term disability and long-term disability. Short-term disability insurance generally lasts from three to six months, depending on the plan design, and it typically pays up to 60% of the employee's base pay.
Long-term disability kicks in after short-term disability when the disability insurance is offered through a company that provides both. Regardless, long-term disability commences after a specific period following an injury or illness's onset. Long-term disability pays an individual for two to ten years and can last longer, depending on the plan design.
Similar to other insurances, there are a lot of nuances that come with disability coverage. For example, some insurances pay out if you are disabled and unable to perform at your regular occupation. On the other hand, other insurances might not pay out unless it's determined that you cannot work at all.
3. Life Insurance
There are several types of life insurance plans available. Term life insurance is the most basic type of plan, and it's also the least expensive. Term life insurance pays out if the plan participant dies within the time frame outlined in the policy. For example, if someone purchased a $250,000 15-year term policy and dies within 15 years, the policy will pay the heirs $250,000 tax-free. Permanent life insurance will pay out at any point in time should death occur, as long as the participant continues paying the premiums. It's a standard requirement to pass a medical exam or medically related questions to qualify for life insurance.
Purchasing life insurance should be given thoughtful consideration based on an individual's specific circumstances. For example, those with children who are minors might need a higher level of coverage that will cover the cost of raising the children in the unfortunate death of their parents.
Many employers offer a certain level of life insurance for free to their employees, and employees can then purchase additional coverage for a relatively low cost. However, in most instances, the insurance only covers the employee while employed with the organization.
4. Long-Term Care Insurance
Long-term care insurance is beneficial for peace of mind if individuals need to be in short or long-term nursing care. A high level of coverage might be necessary for those that don’t have assets outside of the policy to pay for the nursing care.
This type of insurance can be very costly. Purchasing it through an employer is typically the most cost-effective alternative, though many companies don’t offer long-term care insurance. Hybrid policies, like those that allow you to share a policy between spouses, are available at a lower cost.
5. Automobile Insurance
Anyone who currently or has ever owned a car is already aware that automobile insurance is required by law. It's also one of the most crucial insurance coverages one can have. The National Safety Council reports over 42,000 people were killed in motor vehicle accidents in 2020. In 2019, 4.4 million individuals were in accidents severe enough to require medical attention. Even less serious accidents and fender benders can set someone back hundreds to thousands of dollars in repair costs.
Automobile coverage pays out when the covered participant experiences a wreck—both for their damages and the other party's damages when determined the participant is at fault. Depending on the coverage level, it will also pay for damages to a vehicle due to hail, a rock hitting a window, and other types of damage. Certain car insurance levels are required by law according to the state in which one lives, and lenders require an individual to have insurance that at least covers the vehicle loan amount.
6. Homeowners and Renters Insurance
A home is not a small or insignificant purchase. In reality, it's likely the largest purchase a person will ever make. As such, it's vital to protect it—not only so someone doesn't lose the money they have in it, but also so they can rebuild in the unfortunate event that they need to. Homeowners insurance pays for partial damage to a home or the complete destruction of it. It covers the cost of the structure, the damaged or lost contents within it, and the money needed to rent a home while the one covered is being rebuilt or repaired. The three basic levels of homeowners coverage are actual cash value, extended replacement cost or value, and replacement cost.
It's important to read the fine print and limitations of homeowners policies. If the house is in a flood zone, additional coverage will need to be purchased for the home that solely covers loss and damage due to flooding. Standard homeowners policies also do not cover damage caused by earthquakes, neglect, and termites, nor does it cover replacement costs for valuables, like artwork and jewelry.
Renters also need insurance. Renters are not held liable or responsible for structural or property damage. However, they still want to protect the content of the home in the event of theft or damage due to flooding, fire, or other reasons. The level of coverage will ideally equate to the amount it would take to replace one's belongings fully.
7. Liability Insurance
Liability insurance is often included or can be purchased as an extension to homeowner's insurance. Liability insurance covers accidents others might have while in the plan participant's home. For example, if a guest trips and falls somewhere in the home, the homeowner could be found liable and be responsible for the guest's medical bills. Liability insurance helps to cover those costs. Some plans provide coverage outside of the home, as well.
KBI Can Help You Navigate Insurance Needs
Protecting one's self and family with insurance is essential for financial security and peace of mind. KBI's team of brokers are experts in the many types of insurance for small businesses, large organizations, and individuals alike.
With decades of experience behind us, our team can help you navigate the many nuances of insurance to determine the best plans and pricing to fit the needs and budget of your client base. From there, we will assist you in securing the rights plans for your business. Contact us today for more information.
By Chris Freitas