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 |
Pro Tip
If you're young and healthy, an HDHP with an HSA often wins. Low premiums + triple tax benefits on the HSA.
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 |
Watch Out
If you cause an accident with $50k in damages and have $25k coverage, YOU pay the $25k difference. Don't skimp on 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)
Do This
Do a home inventory. Walk through with your phone, recording everything. Store the video in the cloud. This makes claims SO much easier.
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 |
Pro Tip
is dramatically cheaper than . A 30-year-old can get $500k coverage for $25-40/month. Invest the savings yourself.
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
Avoid This
- Extended warranties - Most things don't break; you're self-insuring
- Credit card insurance - Expensive and full of exclusions
- Accidental death - Term life already covers this
- Cancer/disease-specific - Health insurance covers this
- Rental car coverage - Often duplicated by auto/credit card
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
Quick Win
Get quotes from 3 insurance companies for your biggest policy (auto or health). You might find the same coverage for 20-30% less.