The Insurance You Actually Need (And What You Can Skip)

Insurance is one of those financial topics that most people think they understand but actually have significant gaps in knowledge about. Proper insurance coverage protects you from catastrophic financial loss — but over-insuring or carrying the wrong types of insurance is also a drain on your budget.

The non-negotiables for most households are health insurance, auto insurance if you own a car, homeowner's or renter's insurance, and life insurance if anyone depends on your income. These are the coverages that protect against events that could be financially devastating without protection.

Life insurance deserves special attention because the type and amount matter enormously. For most families with dependents, a term life insurance policy — coverage for a specific period, like 20 or 30 years — is the right choice. It is significantly cheaper than whole life insurance and provides the protection your family needs during the years when they are most dependent on your income. The amount should be enough to replace ten years of income, at minimum.

Disability insurance is one of the most overlooked and undervalued coverages. Your ability to earn income is your most valuable financial asset, and the odds of a serious disability are higher than the odds of an early death. Check what your employer offers and consider supplementing with an individual policy if the group coverage is insufficient. A good independent insurance broker can help you shop and compare without bias toward any particular company.