Insurance protects you from financial catastrophe. But too much insurance wastes money, and the wrong kind gives false security.
The Insurance Hierarchy
Must-haves:
- Auto insurance (if you drive)
- Renters/homeowners insurance
- Term (if you have dependents)
Usually worth it: 5. Disability insurance 6. Umbrella insurance (as wealth grows)
Often skip: 7. Extended warranties 8. Most supplemental policies
Health Insurance
The #1 priority. Medical bankruptcy is real.
| Plan Type | Monthly Cost | When to Choose |
|---|---|---|
| High- (HDHP) | Lower | Healthy, want |
| PPO | Higher | Lots of doctor visits |
| HMO | Medium | Okay with network limits |
Key numbers to compare:
- (monthly cost)
- Deductible (pay before insurance kicks in)
- Out-of-pocket max (most you'll pay in a year)
- Copays (per-visit costs)
Auto Insurance
Required minimums aren't enough.
| Coverage | What It Covers | How Much |
|---|---|---|
| Liability | Damage YOU cause | 100/300/100 minimum |
| Collision | Your car (accidents) | Value of car |
| Comprehensive | Your car (theft, weather) | Value of car |
| Uninsured motorist | When they can't pay | Match liability |
Ways to save:
- Raise deductible ($500 → $1,000)
- Bundle with renters/home
- Shop around annually
- Ask about discounts (safe driver, student, professional)
Renters Insurance
Criminally underused. ~$15-25/month protects:
- Your stuff (theft, , water damage)
- Liability (someone gets hurt in your apartment)
- Additional living expenses (if you can't live there)
Life Insurance
You need it if people depend on your income.
| Type | How It Works | Best For |
|---|---|---|
| Term | Coverage for set period (20-30 years) | Most people |
| Whole | Coverage for life + investment | Almost no one |
How much:
- Rule of thumb: 10-12x your annual income
- Or calculate: Replace income until kids are adults + pay off debts + cover education
Disability Insurance
Your income is your most valuable asset. If you can't work, everything falls apart.
| Source | Coverage | Cost |
|---|---|---|
| Employer (short-term) | Often free | Free |
| Employer (long-term) | 50-60% of salary | Often subsidized |
| Private | 60-70% of salary | $50-200/month |
Get employer coverage at minimum. Consider private if you're high-income or employer coverage is weak.
Insurance You Can Usually Skip
Saving on Insurance
- Shop annually - Loyalty doesn't pay
- Bundle policies - 10-25% discounts
- Raise deductibles - Lower premiums, self-insure small stuff
- Ask for discounts - They exist but aren't advertised
- Review coverage - Drop collision on old cars