Insurance certainly doesn’t rank as one of life’s most exciting purchases. Although it is just one part of your overall financial plan, it is a critical one that often is overlooked. Insurance is designed to cover a financial loss due to death, disability, accident, disaster or other event. It’s that simple.

Unfortunately, most Americans aren’t close to being adequately insured. For example, according to the American Council of Life Insurance, the average life insurance policy in force is about $41,450 - not nearly enough to cover future expenses and financial obligations that are faced in the event of a breadwinner’s death.

The need for insurance is to help provide long-term security. But, how much insurance do you need?

First, take a look at your needs for insurance. The following describes some of the major types of insurance and how each might fit into your personal financial plan.

   Health insurance: With millions of Americans uninsured, health insurance - or the lack of it - appropriately commands the most media attention. A prolonged hospital stay or medical emergency can be financially and emotionally devastating.

You may already have group health insurance through your company or business. But if you must secure your own coverage, it pays to shop around. Premiums and coverage vary greatly, and some plans offer special benefits such as low-cost prescriptions and dental coverage. The key is to first assess your needs. For some, basic, “major medical” coverage is all that is needed.

Remember, the most important aspect of any health insurance plan is to protect you against financial catastrophe in the event of a major accident or illness.

   Life insurance: The key to selecting a life insurance product is to understand that your primary objective is having adequate coverage. Life insurance is designed to primarily protect against loss of income due to death. And despite the many products and marketing terms used, life insurance policies basically are one of two types: term and cash value.

Term policies provide basic insurance coverage in the event of death. Cash value type policies, on the other hand, combine insurance coverage with an investment vehicle. As the cash value policy accrues over a period of years, a percentage of your premiums becomes your money to spend or borrow against.

Both types of policies have advantages and disadvantages. Term products may provide the most coverage for the least amount of money, but their premiums may increase with age. Cash value policies may provide an inveshment opportunity, along with steady or even decreasing premiums, but the monthly payments may be too high for the coverage you need and other investment vehicles may provide better returns.

No product is designed for everyone. You need to evaluate your short- and long-term needs for insurance. The most important issue is adequate coverage.

   What is adequate coverage?

Everyone’s needs are different. Financial professionals generally recommend at least 3-7 times your earnings. Some factors to take into account are your age, whether or not you have kids, your income, future income potential and your financial obligations. As a young worker, for example, you may need insurance to cover current income and future earnings. Over time, your savings and other assets - your net worth - most likely will grow. Life insurance buys you time. It helps ensure that, in the event of your death, your family can pay for the kids’ college and settle your debts. Again, needs are individual.

Finally, if you are a single worker, you may need insurance. You may have burial expenses, debts, business needs, medical expenses, charity interests or other financial obligations to meet. By planning ahead, you can make sure that your loved ones aren’t responsible for your debts.

   Disability insurance: A disability can present the greatest threat to financial security by potentially increasing your costs, such as medical expenses, at the same time you lose the ability to work and earn an income. That’s why disability insurance is so important. You may have long-term disability insurance through your employer. If not, most companies that offer life insurance also provide disability coverage. It’s easy to secure a policy that meets your specific needs.

There are several types of disability insurance. Some provide yearly income based on your salary, some provide lump sums, while others allow for projected increases in inflation. Regardless, the primary need is to provide adequate coverage for current, and possibly potent/al, income in the event you become unable to work.

   Property insurance: Every homeowner and renter needs property insurance, and every car owner needs auto insurance. You also need liability insurance to protect you in the event of a lawsuit. In fact, in most states, you can’t legally drive without auto liability insurance. Property insurance usually provides you with some personal liability protection.

Finally, business owners may need to protect against loss of a key person in the business due to disability or death. In business partnerships, life insurance provides the capital to allow the business to continue operating.

There’s an insurance product for virtually every situation. The first step is assessing your own needs before selecting a specific product. The right decisions regarding insurance can help provide long-term financial security for you, your family and loved ones.