The Rule of Insurance
Insure against things that would financially destroy you. Self-insure (skip coverage) for things you can afford to replace out of pocket. A $200 phone screen? Don't insure it. A $400,000 liability lawsuit? Insure that.
Insurance You Need
Health Insurance (Required)
A single hospital visit without insurance can cost $20K-$100K+. This is non-negotiable.
- Through employer: Usually the best value. Employer pays 70-80% of premiums.
- ACA Marketplace (healthcare.gov): Subsidized if income is under 400% of poverty level. Bronze plans for healthy people, Silver/Gold for regular medical needs.
- HDHP + HSA: High-deductible plan paired with a Health Savings Account. Lower premiums, triple tax advantage on the HSA. Best for healthy people who rarely use healthcare.
Auto Insurance (Required in Most States)
- Liability (required): Covers damage you cause to others. Get at least 100/300/100 ($100K per person, $300K per accident, $100K property). State minimums are dangerously low.
- Comprehensive + Collision: Covers your own car. Worth it if your car is worth more than $10K. Drop it for older cars worth less than $5K.
- Umbrella policy ($150-$300/year): Adds $1M-$2M liability coverage above your auto and home policies. Essential if you have assets to protect.
Renters or Homeowners Insurance
- Renters ($15-$30/month): Covers your belongings if stolen/damaged. Also covers liability if someone is injured in your apartment. One of the cheapest, most valuable policies.
- Homeowners (varies): Required by mortgage lenders. Covers structure + contents + liability. Get replacement cost coverage, not actual cash value (which depreciates).
Disability Insurance (Often Overlooked)
Your ability to earn income is your most valuable asset. A 30-year-old has a 25% chance of being disabled for 3+ months before age 65.
- Short-term disability: Often provided by employers. Covers 60-70% of salary for 3-6 months.
- Long-term disability: Covers 50-70% of salary if you can't work for extended periods. Buy "own-occupation" policy if possible (pays if you can't do YOUR job, not just any job).
Life Insurance (If Others Depend on Your Income)
- Who needs it: Anyone with dependents (spouse, children, aging parents) who would suffer financially if you died.
- Who doesn't: Single people with no dependents. Your death wouldn't create financial hardship for anyone.
- Type: Term life insurance (20-30 year term). Coverage = 10-12x your annual income. A healthy 30-year-old can get $500K for $25-$40/month.
- Where to buy: Policygenius compares quotes from multiple carriers. Haven Life offers instant online quotes.
Insurance You Probably Don't Need
- Extended warranties: The expected cost of repair is less than the warranty price (that's how companies profit). Self-insure by keeping an emergency fund.
- Phone insurance: $10-$15/month for 2 years = $240-$360. A screen replacement costs $100-$250. The math rarely works out.
- Whole life insurance: Combines insurance with a terrible investment. Buy term life + invest the premium difference in index funds. You'll end up with 5-10x more money.
- Credit card insurance: Pays your minimum if you lose your job. Better to have an emergency fund.
- Rental car insurance: Your auto policy and credit card likely already cover this. Check before buying at the counter.
How to Save on Insurance
- Bundle policies: Same company for auto + home/renters saves 10-25%
- Raise deductibles: Going from $500 to $1,000 deductible can cut premiums 15-25%. Only do this if you can afford the higher deductible from savings.
- Shop annually: Compare quotes every 12 months. Loyalty discounts rarely beat competitive pricing.
- Maintain credit score: Insurers use credit-based insurance scores in most states. Better credit = lower premiums.
Sources: Insurance Information Institute, Policygenius rate data, Bureau of Labor Statistics disability statistics