Insurance You Actually Need (and Can Skip)

Insurance is the only product you buy hoping never to use. That makes it deeply unintuitive — and a goldmine for upsells. The guiding principle: insure against catastrophes you couldn't survive financially; self-insure the small stuff with your emergency fund and higher deductibles.

Here's the honest breakdown, policy by policy.

Insurance you almost certainly need

Health insurance — non-negotiable

One serious illness without coverage can generate a six-figure bill. If your employer offers a plan, take it (they're subsidizing it heavily). If you're shopping yourself, don't just compare premiums — compare the out-of-pocket maximum, which is your true worst-case cost for the year. A $300/month plan with a $9,000 max can be worse than a $450/month plan with a $4,000 max if you actually get sick.

Auto insurance — required and sensible

Liability coverage is legally required almost everywhere, and for good reason: you can cause a $100,000 accident. Carry liability limits well above state minimums (100/300/100 is a common recommendation — $100k per person, $300k per accident, $100k property). Raise your deductible to $1,000 if you have an emergency fund — it can cut premiums 15–30%, and you only pay it if something happens.

Renters insurance — the best deal in insurance

Often $12–$20/month for $30,000+ of personal property coverage plus liability (if your dog bites someone, if you flood the downstairs neighbor). Your landlord's policy covers the building, not your stuff. If you rent and don't have this, fix that this week.

Homeowners insurance — required by lenders, wise regardless

If you own, you have it. Review annually: make sure coverage reflects rebuild cost (not market value), and consider whether your deductible should rise as your emergency fund grows.

Insurance you probably need in specific situations

• Term life insurance — needed only if someone depends on your income: a spouse, kids, aging parents. Buy level term (20–30 years), roughly 10–12x your annual income. A healthy 30-year-old can often get $500,000 of 20-year term for $20–$30/month. Skip whole/universal life as an "investment" — it's expensive insurance bundled with mediocre investing.
• Disability insurance — your most valuable asset is your future earnings, and disability is statistically more likely than premature death during working years. If your employer offers it, enroll. If you're self-employed, price an individual policy — it's the most underbought coverage there is.
• Umbrella policy — cheap extra liability ($1M for ~$150–$300/year) worth considering once you have meaningful assets or income to protect.

Insurance you can usually skip

• Extended warranties — the store's 3-year TV warranty is priced so the store profits; on average, you lose. Your emergency fund is your warranty.
• Credit life / credit card balance insurance — wildly overpriced for the coverage; term life is cheaper and better.
• Flight / travel insurance for cheap trips — insure the $5,000 nonrefundable honeymoon, not the $200 weekend flight.
• Pet insurance — debatable; it makes sense for breeds prone to expensive conditions, less so as a default. A dedicated pet sinking fund is a reasonable alternative.
• Identity theft insurance — usually just credit monitoring you can get free; freeze your credit instead (free, and more effective).

How much is enough? The 5-minute audit

Once a year, answer four questions: Who depends on my income? (→ life/disability), What's my worst-case medical year? (→ out-of-pocket max), Could I cover my deductibles tomorrow? (→ emergency fund check), Am I paying for coverage I no longer need? (→ kids grown? that 30-year term may be droppable). Thirty minutes, once a year, protects everything the rest of your financial plan is building.

Buy insurance for the losses that would change your life. Self-insure everything else — that's what the emergency fund is for.