What Is The Most Important Insurance in California?
Insurance helps to provide financial protection for property, life, and health against damages, losses, deaths, and sicknesses. The most important insurance policies that Californians must have largely depend on their needs because they serve different purposes. However, insurance policies like auto liability and workers’ compensation are mandatory in California. Here are the common types of insurance policies available in California:
- Health insurance
- Life insurance
- Auto insurance
- Home insurance
- Commercial insurance
Speak to a California-licensed insurance agent before purchasing any insurance policy in the state. They would help you compare quotes from several insurers to get affordable policies customized to meet your needs.
As shown in the Hierarchy of Insurance Needs, health insurance is the most important insurance for everyone. After covering our health, we must safeguard our hard-earned property from loss with property insurance. As the next level of protection, liability insurance further helps safeguard our savings and property in case of a liability claim against us. After all the coverages are in place, life insurance helps us use it as a financial tool while still alive - for retirement planning and for living benefits, and to leave money to our loved ones after we die.
The Most Important Insurance in California:
HEALTH INSURANCE
Health insurance in California is a type of insurance policy that covers medical, surgical, and drug expenses. There are different types of California health insurance policies that residents can purchase based on their health conditions. Below are some common types of medical insurance policies sold in California:
| Common Types of CA Health Insurance | ||
| Types of Health Insurance Policies | Subtypes of Health Insurance Policies | Definition |
| Individual Health insurance California | An individual health insurance plan is one you purchase for yourself and your family members as opposed to the coverage you get through your employer or from a government-run program like Medicaid, Medicare, or CHIP. The best place to purchase individual health plans is through Covered CA (California's Health Insurance Marketplace). Insurance for self employed is also available on the individual market. | |
| Group Health Insurance in California (compliant with the California Affordable Care Act) coverage | Group health insurance plans are policies employees or members of organizations get through their employers or organizations. There are two types of group health insurance policies:
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| Major CA Health Insurance | Medicare | Medicare is a health insurance program for seniors (65 or older), people with End-Stage Renal Disease (ESRD), and young people with disabilities. Medicare is divided into two parts:
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| Medicare Advantage | Medicare Advantage (MA) is an alternative health plan to Medicare Part A and B. Although Medicare approves MA plans, they are typically run by private companies. Below are the types of MA plans in California: | |
| Medicaid (which is called Medi-Cal in California) and California Healthy Families (SCHIP) | Medi-Cal is an insurance program that provides health coverage for low-income people, including pregnant women, seniors, families with children, persons with disabilities, and low-income residents with specific diseases like breast cancer, tuberculosis, or HIV/AIDS. In contrast, SCHIP provides health, vision, and dental coverage for children, teens, and sometimes pregnant women who are without insurance and ineligible for free Medi-Cal. | |
| Medicare Advantage Prescription Drug Plan | Medicare Advantage prescription drug plan (also called Part D) is a health insurance coverage that covers drugs and is usually sold by private companies. | |
| Medigap (Medicare Supplement) | Medigap is health coverage sold to fill Medicare Parts A and B gaps by covering deductibles, coinsurance, and copays. | |
| Supplemental CA Health Insurance | Critical Illness Insurance | Critical illness insurance offers a lump-sum payment in the event of a future major illness diagnosis. |
| Hearing (and hearing aid) Insurance | Hearing insurance typically covers costs associated with hearing aids and tests. | |
| Dental Insurance California | Dental insurance covers costs associated with routine dental care. Before purchasing dental insurance, speak to a California health and wellness dentist who can guide you through the process. | |
| Vision Insurance | Vision insurance covers routine eye health costs like contact lenses, eye exams, contact lens fittings, eyeglass lenses, and frames. | |
| Hospital Indemnity Insurance | Hospital indemnity insurance covers the cost of hospital stays, accident-related inpatient rehabilitation, and hospital admission. | |
| Long-Term Care (LTC) Insurance | Long-term care (LTC) insurance covers the cost of nursing-home care, home-health care, and personal or adult day care for individuals who can no longer perform activities of daily living due to old age, chronic illnesses, or disabilities. | |
| High deductible health plans | A high deductible health plan is a California medical insurance with a higher deductible for medical costs. Although the monthly premiums are usually lower, you will pay more out of pocket for health care costs. | |
| Disability Insurance California | Disability insurance offers partial wage replacement benefits to eligible workers who cannot work because of non-work-related injuries, pregnancies, or illnesses. California disability insurance only provides monetary benefits and not job protection. Here are the two types of disability insurance available in California:
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Temporary medical insurance California:
Unlike other states, short-term limited-duration health insurance policies are banned in California. Hence, insurance companies do not sell temporary health policies in the state.
Why Do You Need Health Insurance in CA?
As of 2022, over 39 million people resided in California, with about 3.2 million of them lacking health insurance policies. About 38% of Californians have at least one chronic condition, such as Alzheimer's disease, diabetes, health disease, stroke, and cancer. For instance, over 8 million Californians have cardiovascular diseases that tend to worsen if not taken care of and treated. Hence, Californians need health insurance policies that can assist them in taking care of health issues to extend the length and quality of their lives.
In California, you need health insurance when:
- You are suffering from chronic diseases: Many Californians are suffering from diseases like diabetes, heart disease, stroke, and cancer that can lead to death if not properly taken care of. However, having health insurance policies provide coverage for routine medical tests that can help detect these diseases early and make it easier to take care of medical costs.
- You need to safeguard your family: One major way to protect your family members is to purchase a health insurance policy that covers them. Ensuring your loved ones get the best medical care when they become sick increases their life chances.
- You need to deal with medical inflation: The cost of medical treatment is rising due to improved technology and the increase in diseases. This can cause a financial strain if you do not have health insurance. However, with a comprehensive health insurance policy, you can get quality treatment at an affordable cost.
Speak to a life and health insurance expert who can help you compare health insurance quotes from several health insurance companies until you get the best policy to suit your health insurance needs.
The 2nd Most-Important Insurance:
A group of policies concentrated on property and specialized disaster coverages:
PROPERTY and LIABILITY Insurance: Personal and Business
Property and liability insurance protects your residential and business properties and their contents (like homes or cars) from damages or losses caused by covered perils like theft, accidents, lightning, volcanic eruption, vandalism, and smoke. It also covers third-party personal liability and commercial liability claims due to property damage or accidental injuries sustained on your personal or business property. Some common types of property and liability insurance policies in California are:
- Auto insurance
- Commercial insurance
- Residential insurance, including homeowners, condo, renters, and landlord insurance policies
- Liability insurance, including product liability insurance and vicarious liability insurance
AUTO INSURANCE
Auto insurance in California is an insurance policy with a primary purpose of protecting others from your actions as a driver. In addition to the liability aspects, auto insurance provides financial coverage if your car gets stolen or damaged as a result of an accident. The only mandatory California auto insurance policy is liability coverage. California car insurance law requires all drivers to have a minimum auto liability coverage of $15,000 per person, $30,000 per accident, and $5,000 per property damage. If the car is financed, the lender will also require you to get full auto coverage until the vehicle is paid off. In addition to liability coverage, full coverage car insurance protects the bank's interest if the insured vehicle is damaged or stolen.
There are over 140 auto insurance carriers in California and they all offer the same base car insurance rates, which are regulated by the California Department of Insurance. The insurance premiums you are offered during a car insurance quotes can differ between the insurers based on how each insurer bundles coverages and the types of discounts it offers its members. California car insurance rates will also differ depending on various factors like gender, age, location, mileage, driving record, and car type.
The average annual cost of car insurance in California can be as low as $800 and as high as $6,400.
| Average Annual Cost for Car Insurance in CA | |||
| Gender | Age Group | Low Average | High Average |
| Male | 18-20 | $1,700 | $6,400 |
| Female | 18-20 | $1,650 | $6,000 |
| Male | 25-30 | $950 | $3,500 |
| Female | 25-30 | $950 | $3,400 |
| Male | 40-50 | $800 | $3,000 |
| Female | 40-50 | $800 | $2,900 |
To get car insurance, speak to a state-licensed California car insurance agent who can help you compare CA auto insurance quotes from several auto insurance companies. They will ensure you get cheap car insurance in California. Use the California insurance license lookup to determine the licensure of your preferred auto insurance agent before working with them.
| Types of CA Auto Insurance | |
| Types | Meaning |
| Short Term Car Insurance | Short term car insurance is a temporary coverage that can last for a short period, like one hour to several months. It covers damages to your car and of others. |
| Auto Collision | Auto collision insurance coverage pays to repair or replace your car when damaged in an accident with another car or object like a guard rail, deer, and mailbox. The worst type of collision to be in is a head-on collision because it involves the front ends of two cars hitting each other. Another common type of collision coverage is rear end collision, which occurs when a driver uses their car to hit the car in front of them. |
| Auto Comprehensive | Auto comprehensive coverage pays for damages to your car caused by fire, theft, flood, vandalism, or perils other than collision. |
| Liability Coverage | Liability coverage covers third-party bodily injury or property damage. |
| Gap Coverage | Gap coverage provides coverage when the outstanding loan on a car is higher than the car’s value if the car becomes totaled. |
| Multi Car Insurance | Multi car insurance policies allow drivers to insure more than one car under one single policy. |
| Used Car Insurance | Used car insurance is a type of auto insurance policy that covers pre-owned vehicles. |
| Uninsured/Underinsured Motorist Coverage | Uninsured/underinsured motorist coverage is a type of auto insurance coverage that protects drivers when they are involved in an accident with another driver who does not have auto insurance or sufficient coverage. |
| Rental reimbursement coverage | Rental reimbursement coverage pays for a rental car when your insured car is stolen or undergoing repairs due to an accident. |
| Medical payments coverage | Medical payment coverage pays your medical bills and that of your passengers when you or they get injured in an accident. |
Why Do You Need Auto Insurance in California?
You need auto insurance in California because you are required to have it by law and to protect your own property.
Minimum liability insurance is required for all vehicles on the road. Not having this coverage can result in a fine of $100 - $500. If you cause an accident without the California-required minimum liability car insurance, your driver license may be suspended and you are likely to get sued by the victims of your negligent actions.
As of 2022, nearly 37 million vehicles were registered in California. All the drivers of these vehicles need California car insurance policies because many accidents happen on the road that can lead to car damage, injuries, or death. According to the California Highway Patrol, close to 500 thousand crashes happen in California every year. On average, 60 percent of crashes involve only property damage, while nearly 200 thousand of annual crashes also cause bodily injuries. In 2019, 3,606 people were killed in car crashes, with 1,066 of the involved drivers under the influence of alcohol. In 2020, over 180 thousand California vehicles, valued to the tune of $1.6 billion, were stolen.
You need car insurance in California because:
- It is mandatory by law: California car insurance laws require all drivers to carry a minimum auto liability coverage of $15,000 per person (and total of $30,000 per the entire accident), and $5,000 for property damage - for when they cause the accident.
- Your lenders or leasing agent may require it: If you finance or lease your vehicle, your lender may require you to get auto insurance policies like comprehensive or collision insurance coverage to protect their investment.
- It helps to protect you from the cost of repairs: Although having the mandatory auto liability coverage that pays for damages you cause to other people’s cars is okay, it is usually not enough and it is better to have other additional auto insurance policies that suit your vehicle’s needs. For instance, having collision auto coverage will help pay to repair or replace your car if it is wrecked in a collision.
- It helps protect your passengers: Medical payments coverage helps pay for your medical bills and that of your passengers when they get injured in an accident.
- It provides theft coverage: Car theft is on the rise in California. 2020 saw a nearly 20 percent jump in car thefts, compared with 2019. It is good to have comprehensive auto insurance to ensure your car is properly covered in the event of theft.
Discuss your auto insurance needs with a California-licensed insurance agent who has access to multiple competing insurers for comparison of quotes and bundling and options.
RESIDENTIAL INSURANCE
There are nearly 14.6 million housing units in California and every one of them needs some sort of residential insurance to protect the property from damage, loss, and theft and to provide a level of personal liability for the insured resident. Over 55% of homes in California are owner-occupied, while more than 6 million dwellings are rental units. Owners and renters of residential properties buy residential coverage based on their ownership status. While owners of residential property need different types of coverage to fit the property type, the renter can typically get a basic California renters insurance regardless of the type of property they rent.
Residential insurance in California can be broken down as follows:
OWNER
- Homeowners insurance
- Landlord insurance
- Condo insurance
- Business property insurance (for apartment complexes)
RENTER - Renters insurance
Standard California home insurance covers damages or losses resulting from theft, breakage of glass, sudden and accidental water damage, fire or lightning, windstorm or hail, explosion, riot or civil commotion, smoke, vandalism, and volcanic eruption. However, it excludes damages from flood, earthquake, earth movement, termites, mold, wear and tear, neglect, and water damage caused by seepage or leaks. Some of these coverages can be added to the standard home insurance policy as an optional rider, while others may have to be purchased separately.
Speak with a California-licensed P&C insurance agent who can provide further information on the inclusions and exclusions of your residential insurance policy. An agent can help you pick the right policy to purchase that will suit your needs.
HOMEOWNERS INSURANCE
Over 8 million owner-occupied dwellings in California need homeowners insurance policies to cover destruction and damage to their homes and their contents. Typical California, homeowners insurance policies provide the following coverages:
- Coverage A — Dwelling: It covers your house and attached structures if damaged by covered perils like fire, lightning, windstorm or hail, explosion, and smoke.
- Coverage B — Other structures: It covers detached structures within your property, like detached garages, barns, sheds, and gates. Coverage B is usually limited to 10% of the Coverage A limit, but you can get more coverage at an extra cost.
- Coverage C — Personal property: It covers your personal belongings like antiques, silverware, money, firearms, jewelry, furs, electronics, furniture, fine arts, and collectables. Coverage C is usually about 50% of Coverage A.
- Coverage D — Loss of use: It covers additional living expenses like meals, housing, and warehouse storage incurred when you have to live in temporary housing due to damages to your insured home. Coverage D is typically limited to 20% of Coverage A.
- Coverage E — Personal liability: It covers third-party liability claims. Coverage E covers you when others get injured, or their properties get damaged on your property. It also covers any legal claim arising from such injuries or damages.
- Coverage F — Medical payments to others: It covers the medical bills of others who accidentally get injured in your home. Coverage F does not cover injuries sustained by you or members of your household.
In California, you need Homeowners Insurance because: - Your lender may require it: Your mortgage lender will require you to have homeowners insurance to ensure their financial investment in your home is secured even if it is destroyed or damaged by covered perils.
- It protects your home: Having a homeowners insurance policy will save you money on out-of-pocket expenses when unforeseen disasters like fire, lightning, or windstorms cause damage to your home. For instance, in 2021, over 3,300 homeowners insurance lightning-related claims worth $522.6 million were recorded in California.
- It protects your belongings: A homeowners insurance policy covers your personal belongings like jewelry, electronics, and furniture when stolen or destroyed due to covered perils. For instance, if your house was robbed and your jewelry was stolen, your homeowners insurance will cover it. In 2020, about 97.7% of homeowners insurance claims were due to property damage, including theft.
- It protects you from lawsuits: Your homeowners insurance policy includes personal liability coverage that pays for the medical fees of third parties injured on your property. It also covers legal claims resulting from such injuries. For instance, if your dog bites your visitor and they sustain injuries, your homeowners insurance will cover the medical expenses. In 2021, there were over 2,000 dog bite claims in California, with an average claim of nearly $60,000.
RENTERS INSURANCE
In unforeseen events like fire outbreaks, the occupants of the over 6.5 million rented apartments in California stand the risk of losing their personal belongings if uninsured. Purchasing renters insurance helps protect your personal belongings in your rented apartment. Renters insurance policies typically provide the following coverages:
- Coverage C - Personal Property: It covers your personal possessions in the rented apartment.
- Coverage D - Loss of Use: It covers additional living expenses if your rented apartment becomes inhabitable due to covered losses. Coverage D is usually 20% of Coverage C.
- Coverage E - Personal Liability: It covers you when others accidentally get injured in your rented home or apartment. Coverage E is usually set at a minimum of $100,000.
- Coverage F - Medical Payments to Others: It covers the medical expenses of others when they get injured in your rented apartment. Coverage F is set at a minimum of $1,000.
You need Renters Insurance because - Your personal belongings need insurance protection: A renters policy will reimburse you when your belongings get damaged or lost due to theft or covered perils. Landlord's insurance will cover the damage to their building but it does not cover your stuff. For instance, if a fire starts in your rented apartment and causes damage to your belongings, your renters insurance will cover it. In 2021, about 361,000 residential structure fires occurred in California, which caused over $8.9 billion in property damage. Renters insurance can help cover such losses.
- It provides liability coverage for injuries: Renters insurance covers any required medical bills when others get injured in your home.
- Your landlord’s insurance will not cover you: Although your landlord might have an insurance policy that covers your apartment’s building structure, the same cannot be said for your belongings. This is because your landlord’s insurance covers the building structure alone.
- It covers additional expenses: A renters insurance covers your living expenses when you have to temporarily leave your rented apartment if it becomes uninhabitable due to damages caused by covered perils.
- Your landlord requires it: Most landlords in California require tenants to carry renters insurance to alleviate their liability for personal property losses and any accidental injuries sustained by guests in the tenant’s home.
CONDO INSURANCE
Home condo insurance provides similar coverages as renters insurance but it does so for the owner of the condo unit. If a condo is rented out, the tenants still need their own renters insurance. California law requires that multi-unit condominium properties have a homeowners association which maintains the common areas, and provides insurance for liabilities and the building itself. Condo insurance purchased by the unit owner covers damages to the interior of the condo unit. The exterior part of the condo is usually covered under the master condo insurance policy that the condominium association purchases. Typically, California condo insurance provides the following coverages:
- Coverage C - Personal Property
- Coverage D - Loss of Use (coverage limit is about 40% of Coverage C)
- Coverage E - Personal Liability
- Coverage F - Medical Payments to Others
Condo insurance average cost:
The average cost of condo insurance in California is between $40 and $50 monthly for $60,000 in personal property coverage, $300,000 in liability protection, and a $1,000 deductible. Speak with a state-licensed insurance agent who can help compare condo insurance quotes from several home insurance companies in California, so you can get a cost-effective policy.
You need Condo insurance if: - You own a Condo unit: Having condo insurance provides coverage when your personal belongings are destroyed or damaged due to covered perils or third-party liabilities occurring in your condo.
- You intend to pay the mortgage on your condo: Mortgage lenders usually mandate condo owners to get condo insurance policies to protect their investment.
LANDLORD INSURANCE
California landlords have to protect their 6.5+ million rental properties against financial losses caused by fire outbreaks, windstorms, or thefts that cause damages to their properties. The key difference with homeowners insurance, is that landlord insurance also covers accidental damage to the property by the tenant, and intentional damage coverage can also be added to the policy. Also, landlord insurance covers liability claims (like bodily injury and property damage) from the tenants and their guests.
You need Landlord insurance because:
- It protects against liability claims: Landlord insurance provides coverage when a third party (tenant or guest) is injured on your rental property and you are found liable. Landlord liability insurance will cover the costs of compensation or medical bills.
- It covers unforeseen circumstances: Your landlord insurance policy can provide capital for restoring your rental property to its original state if it is destroyed by a covered peril like fire, windstorm, vandalism, and theft.
- It covers loss of rent: Landlord insurance provides coverage when your tenants have to move out after a covered event like burglary, vandalism, or fire.
- It covers damages to your house: Some tenants may damage your rental property and its appliances during their stay. Having landlord insurance would help cover such damages.
- It covers water damage: Water damage can occur from leaking pipes or electronic devices like washing machines or dishwashers. In these cases, landlord insurance covers the costs of damages incurred if the appliances were preinstalled in the insured house.
To get landlords insurance in California, speak with a property and casualty insurance agent who has experience with both residential and commercial insurance.
COMMERCIAL INSURANCE
Business insurance in CA covers losses from business operations like theft, liability, property damage, worker injury, and business interruption. Depending on their business needs, business owners can purchase different types of California commercial insurance policies. Below are the types of California business insurance policies:
| Types of CA Commercial Insurance | |
| Types | Sub-types |
| Commercial Health Insurance | Group Health Plans
Occupational Health Insurance Disability Income Coverage Workers Compensation Insurance |
| Commercial Property Insurance California | Inland Marine Insurance
Commercial Crime Insurance Business Interruption Insurance California Commercial Auto Insurance |
| Commercial Life | Key Employee Life Insurance
Buy-Sell Agreements Coverage Group Life Insurance |
| Business Liability Insurance CA | California Commercial General Liability Insurance
Directors & Officers Liability Insurance California Product Liability Insurance Business Insurance Public Liability |
You need Business Insurance because without it, in case of a loss, most - especially small businesses do not have enough cash set aside to cover the resulting bills and to continue operating the business as normal.
As of late 2022, nearly 19 million people in over 800 occupations were employed in California. Out of all employed Californians, 7.2 million work in or own one or more of the 4.1 million small businesses operating in the state. The table below shows the employment size, the number of firms, and employees in California:
| California Companies and Employment by Size | |||
| Small Business
(under 500 employees) |
Employees size range | Number of Firms | Number of Employees |
| 1 to 4 | 916,931 | 1,390,217 | |
| 5 to 9 | 134,524 | 885,074 | |
| 10 to 19 | 84,415 | 1,140,948 | |
| 20 to 49 | 54,501 | 1,638,502 | |
| 50 to 99 | 18,202 | 1,254,998 | |
| 100 to 249 | 10,648 | 1,612,258 | |
| 250 to 499 | 3,211 | 1,107,119 | |
| Large Business
(over 500 employees) |
500 to 999 | 1,534 | 1,058,170 |
| 1000 to 2999 | 891 | 1,449,431 | |
| 3000+ | 323 | 3,088,755 | |
| Total | 1,225,180 | 14,625,472 | |
| Source: Employment Development Department, 2021 | |||
With over 458,000 nonfatal and 451 fatal occupational injuries in California in 2019, business owners need to have business insurance in California because:
- It is required by law: The state law requires businesses in California to provide certain types of commercial insurance policies to their employees. For instance, California law requires employers to provide workers' compensation insurance to their employees; failure to do this is considered a misdemeanor punishable by fines, jail terms, and an increase in premiums. Commercial auto insurance policies are also mandatory in California. All drivers must carry a minimum auto liability coverage of $15,000 per person, $30,000 per accident, and $5,000 per property damage.
- Contracts may require commercial insurance: Most businesses enter into contracts that require insurance protection. For instance, mortgage lenders and landlords will require businesses to have insurance policies before renting commercial properties, borrowing money to finance goods, or entering into loan agreements.
- It can help recruit and retain the best talents in the industry: Besides getting jobs with good salaries, employees prefer to opt for jobs with good benefits like health and life insurance policies. Businesses that offer their employees group life and health benefits packages tend to attract and retain the best employees in California.
- It builds credibility: Customers and contractors see businesses with commercial insurance policies as credible. This is because they believe such businesses take risk management seriously and can provide the right protection even when things go wrong.
Commercial insurance in California works by providing:
- Commercial property coverage: It pays to repair or replace a business-owned or rented building and its contents when damaged by perils like fire, theft, explosions, vandalism, and storm. Flood and earthquake coverage is purchased separately.
- Commercial liability coverage: It covers your business when your operations, employees, or services cause bodily injury and property damage to others.
- Commercial health coverage: An employer can get a group health policy for employees to cover medical expenses and disability income when they get sick, injured, or disabled while on the job.
- Commercial life coverage: A group life insurance gives all employees of the company access to affordable life insurance coverage while they are employed. Some group policies allow the employee to transfer the policy out if they decide to leave the company. Commercial life insurance can protect your business against financial loss due to the death of a key employee and assist in transferring ownership of the company if one of the partners dies.
Discuss your commercial insurance needs with a California-licensed insurance professional.
DISASTER INSURANCE
Standard commercial property and residential insurance policies in California only cover damages resulting from windstorms or hail, hurricanes, and volcanic eruptions. Damages resulting from floods and earthquakes are excluded. As a result, Californians who live or do business in counties where floods and earthquakes are prevalent need to get disaster insurance policies like earthquake and flood insurance to protect their residences and businesses against such disasters.
| Common Disasters in California | ||
| Types of Disasters | Statistics on disasters | Counties frequently affected by disasters |
| Volcanoes | About 20 volcanoes located in California can erupt without notice. | Siskiyou County, Shasta County, and Mono County. |
| Wildfire | In 2021, about 9,260 wildfires occurred in California, burning over 2.2 million acres of land and putting over 2 million properties at risk. | Riverside County, Los Angeles County, San Bernardino County, and San Diego County. |
| Floods | Nearly 200,000 residents live in coastal areas putting homes and over 870 miles of roads at risk. | In the last 25 years, all the 58 counties in California have experienced at least one flood event. However, floods are more prevalent in cities like Sacramento and Los Angeles. |
| Earthquakes | California currently has several faults, and 200 of them are potentially hazardous due to their slip rates. | San Diego County and Los Angeles County. |
| Drought | Over 37 million Californians are affected by drought. | As of 2021, a drought emergency proclamation was declared in all the 58 counties in California. |
You need disaster insurance because:
- Living or doing business in disaster-prone areas like Los Angeles County, San Diego County, and Riverside County puts your home and business at risk of wildfires, earthquakes, droughts, and floods.
- Your mortgage lender might require you to have a disaster insurance policy to protect their financial investment in your residential or commercial property if the property is in a disaster-prone area and/or a flood zone.
- Your residential and commercial property insurance policies exclude damages or destruction from natural disasters like earthquakes and floods. You will need to purchase disaster insurance policies that provide coverage for the specific disaster prevalent in the area where your home or business is situated. For instance, you will need earthquake insurance if you reside in an area where earthquakes are common. Conversely, you will need flood insurance if your business is located in an area where floods are common.
3rd Most-Important Insurance - Life Insurance:
According to the Hierarchy of Insurance Needs, life insurance is the third most important type of insurance. Life insurance can be divided into two main usage types:
- Living benefits: This allows insureds to access money from their death benefits while still alive.
- Death benefits: This is the sum of money the insurer pays to policy beneficiaries at the insured's demise.
After the insured’s demise, life insurance is further divided into two sub-groups: - Basic Life Insurance: It covers the end-of-life expenses of the insured, like medical costs, burial, or cremation.
- Financial Security (or Legacy) Life Insurance: This is the amount of money the life insurance company will pay out to the policy beneficiary above the sum needed to cover the insured’s basic final expenses.
LIFE INSURANCE
The financial hardship people experience when their breadwinners die can be devastating. However, deaths can and will happen to anyone at any time. For instance, the number of deaths recorded in California increased from 316,962 in 2020 to 329,312 in 2021. Meanwhile, 44% of households experience financial hardships within 6 months of the breadwinner's death. This makes it vital to put measures in place to ensure our immediate family members (dependants) are financially stable even after our demise. One major way to do this is by purchasing life insurance.
In 2022, an estimated 12.5 million Californians lacked or had insufficient life insurance policies, which puts a financial risk on their dependents when they pass away. Life insurance in California is very important because it helps individuals to leave money behind for their loved ones at their demise. It also allows the insured individuals to enjoy living benefits of life insurance while still alive. There are two major types of life insurance policies in California:
- Term life insurance: This policy is best for individuals who need life insurance for just a short period. Term life insurance policy provides coverage for a set period, like 5, 10, 20, or 30 years. Policy beneficiaries can only receive term life death benefits if the insured dies during the policy term; no death benefit would be paid if the insured outlives the term policy.
- Cash value life insurance: It provides lifelong life insurance coverage that combines both death benefits and a cash value component. The insured can use the savings account for tax-advantaged retirement savings and to borrow from their cash value account while still alive. Once they die, the life insurance company pays out the death benefit to policy’s beneficiaries, minus whatever outstanding loans were still owed by the insured. Examples of cash value life insurance in California are:
- Whole life insurance
- Final expense
- Universal life insurance
- Variable universal life insurance
- Index universal life insurance
Speak to a California-licensed life insurance agent who can give you more details on the best life insurance policy to purchase based on your needs. The agent will help you compare life insurance quotes from multiple California life insurance companies so you can end up with an affordable policy that will fit your needs.
You need life insurance because it pays for your funeral and possibly leaves a tax-free legacy gift to your loved ones. You also need life insurance as a financial alternative to the traditional retirement savings, which gives you access to zero-loss investing opportunities for your nest egg.
California is home to over 39 million people, with over 5.9 million residents aged 65 and above. Over 12 million Californians do not have life insurance and statistically, nearly half of seniors die with less than $10,000 in savings.
You need life insurance policies if you:
- Want to Save for Retirement: Living benefits cash value life insurance can be invested into funds where you benefit from the market’s ups and none of the downs (Zero-Loss Guarantee) - unlike the traditional Roth IRA and 401k which can go up and down, possibly losing your entire nest egg.
- Have dependents: You can get life insurance because of your children or other dependents so they can be financially secure at your demise. Your family members can also use the death benefits from your policy to cater for burial expenses, funeral arrangements, children’s tuition, and debts.
- Want it to serve as an inheritance: During the course of your lifetime, you might have a lot of pending bills which could, in turn, lead to you not being able to give your children the kind of life you want them to have. However, if you purchase a life insurance policy, you can afford to give them that life after your death.
- Do not have savings: Seniors without savings can buy minimal benefit life insurance policies like Final Expense (FE), which guarantees acceptance regardless of health conditions and offers enough death benefit to cover the burial costs.
- Own a business: If your business is a partnership, when you or your partners die, the death benefit of a company-owned life insurance policy can be arranged to buy out the portion of the company from the family of the deceased. If a key member of the company dies and the replacement takes a lot of time and money to source and train - a keyman policy will help cover those costs.
- Want access to living benefits: You can access the death benefit funds of life insurance policy to pay for medical bills or cover urgent needs while still alive.
- Have loans and liabilities: If you have unpaid debt, loans, and other liabilities, life insurance can help your loved ones pay them off at your demise.
Discuss your life insurance needs with a knowledgeable and licensed California life insurance agent.
Basic Life Insurance to Cover Final Expenses and Burial
The basic purpose of life insurance is to help your loved ones pay for your funeral and the final expenses associated with the burial. While you are young, basic life insurance with enough death benefits to cover your death can be purchased for a fraction of what the same coverage would cost you once you start to age:
Why Do I Need Basic Life Insurance Policy For Final Expenses?
Without leaving some savings or at least a basic life insurance policy death benefit, your loved ones and friends will have to pay for your funeral preparations and burial costs out of pocket.
Some of the over 5.9 million California seniors may find it difficult to get life insurance policies because of their age and pre-existing conditions. After 50 years old, life insurance costs begin to increase much faster, and after reaching 75 years old, most life insurance products become unavailable due to unaffordability or not being able to qualify for coverage.
If you did not plan ahead and purchase cheap life insurance while you were younger, a final expenses (FE) life insurance policy might be your only remaining option. Final expenses insurance’s typically low benefit helps to cover your final medical bills, burial expenses, and other end-of-life expenses.
You need basic life insurance when:
- You want your family members to be able to pay for your funeral costs effortlessly
- You want your loved ones to be able to pay off your debts after your demise, so the paid-off property is passed on to your loved ones and not repossessed
- You want to have an affordable life insurance policy regardless of your age and pre-existing condition
Cost of End of Life Expenses in California
The cost of end-of-life expenses in California differs based on several factors like services provided by the funeral home, funeral merchandise, transportation of the deceased, and dignified care of the deceased. Below is the breakdown of the cost of some funeral items in California:
- Basic services: $2,190 - $4,000
- Embalming: $750 - $6,000
- Transportation of remains: $350 - $500
- Preparation of the body: $250 - $350
- Casket: $250 - $20,000
- Alternative container: $100 - $500
- Facility/staff use: $450 - $500
- Direct cremation: $450 - $4,450
- Urn for the ashes: $25 - $3,000
- Grave maker: $350 - $20,000
- Cemetery plot: $400 - $10,000
Average Cost of Funeral in California
Death is inevitable and can be sudden at times. The average funeral cost in California is between $2,770 and $10,000. This price varies depending on several factors like the style of service, materials used, transportation, and location of service. The cost of a funeral in California also varies by city. Below is the cost of a direct cremation in some cities in California:
| Direct Cremation Cost in Top 10 Cities in California | ||
| City | Average Direct Cremation Cost | Low-cost Direct Cremation Cost |
| Los Angeles | $1,600 | $700 |
| San Diego | $1,300 | $950 |
| San Jose | $1,900 | $1,000 |
| San Francisco | $2,000 | $1,000 |
| Fresno | $1,500 | $950 |
| Sacramento | $1,600 | $950 |
| Long Beach | $1,600 | $800 |
| Oakland | $1,900 | $950 |
| Bakersfield | $1,550 | $950 |
| Anaheim | $1,600 | $900 |
You can get a free cremation in California if you opt for a whole-body donation. This is when you decide to donate your body after death for research. Once the donation is performed, the remains are usually cremated at no cost. Californians who have insufficient funds for burial may be eligible for burial assistance from the government. For instance, the California Victim Compensation Board (CALVCB) may offer up to $12,818 for the funeral, burial, or memorial service of a deceased person who is a victim of physical injury threats or death. Family members of deceased veterans can apply for cemetery and burial benefits from their local County Veterans Service Offices. Alternatively, you can purchase insurance policies like funeral expenses or term life to cover the basic end-of-life costs at your demise.
Most Common Types of Life Insurance in California are:
Term Life
Final Expense (FE), and
Indexed Universal Life (IUL)
Term life insurance is a temporary policy that provides coverage for a set period, between 5 and 30 years. Policy beneficiaries can only get death benefits if the insured dies within the policy tenure. However, no death benefit would be paid if the insured outlives the policy. Hence, take necessary measures before your term life policy expires. You can convert it to permanent life insurance like whole life insurance, renew it for another term, surrender it, or terminate it.
Final Expense (FE) is a permanent life insurance coverage for seniors who are unable to get cheaper coverage due to age and/or pre-existing conditions. It’s typically low death benefit helps to ease the financial burden of covering the funeral arrangements of the insured. FE policy beneficiaries can also use the death benefit for other things like paying medical expenses, paying off debts, or paying down credit card balances. There are two types of final expense life insurance in California:
- Guaranteed issue: This type of insurance policy is common among seniors who find it difficult to get other life insurance policies due to their age or health conditions. This is because guaranteed issue final expense insurance does not require medical exams, and coverage is usually guaranteed.
- Simplified issue: Just like with the guaranteed FE, where acceptance is guaranteed, simplified issue FE does not require medical exams, but it does require that the applicant provides answers to a few health questions.
Indexed Universal Life (IUL) is a permanent cash value life insurance policy that combines both death benefits and a cash value component. Besides the life insurance death benefit, IUL is tied to a market index that grows retirement savings tax-deferred, and protects your money from loss with a zero-loss floor guarantee. IUL can act as your personal bank, allowing you to borrow cash from your own cash values with tax benefits. Ideally, you want to spend all your cash values before death, otherwise, it becomes the property of the insurance company.
If you die with unpaid IUL cash value loans, the owed amount is subtracted from the death benefit before it is paid out to your beneficiaries. Policy beneficiaries can use the death benefits obtained from the IUL policy to cover your funeral expenses, your leftover medical expenses and other debts, daily needs, college tuition fees, and anything else they want.
Asides from the death benefits that your policy beneficiaries will get after your demise, IUL offers a plethora of living benefits that come with life insurance policies. These living benefits allow you to access funds from your death benefits while still alive. However, the amount you withdraw will be deducted from the final death benefit that your life insurance company will pay out to your policy beneficiaries. The amount collected as living benefits is usually geared towards cushioning the impact of old age and the accompanying long-term care. Common living benefit riders in California are:
- Accident death rider
- Long-term care rider
- Family income rider
- Critical care illness rider
- Terminal illness rider
- Accelerated death benefit (ADB)
- Tax-free retirement income
Discuss life insurance with a California-licensed life insurance agent who can assess your needs and advise you on the best coverage to fit those needs at the most optimal cost.
