The Insurance You Actually Need (and What to Skip)

Insurance exists to protect against a loss you couldn't recover from on your own. That single test cuts through most of the noise: cover the catastrophic, self-insure the small stuff, and skip the rest. Here's the short list that actually matters. (General education, not personalized advice.)

The coverage worth having

• Health insurance. A serious illness produces the kind of bill that can erase a net worth. Non-negotiable.
• Term life insurance — if someone depends on your income. Cheap, simple, and it replaces your earnings for the years your family needs them. Skip it if no one relies on you financially.
• Disability insurance. Your ability to earn is your biggest asset; this protects the paycheck if you can't work. Often overlooked, and statistically more likely to be used than life insurance.
• Liability coverage — auto, home or renters, and an umbrella policy once you have assets. Protects against lawsuits and large claims.

What you can usually skip

• Whole or universal life as an "investment." It bundles insurance with high-fee investing; most people do better with term coverage plus a low-cost index fund.
• Tiny add-on policies — phone insurance, extended warranties, flight insurance. These cover losses you can absorb yourself.

The rule of thumb

Insure what would be financially catastrophic; pay small, recoverable costs from your own emergency fund. Raising deductibles on what you can self-cover lowers your premiums, too.

Right-sizing your insurance is a core part of a healthy financial base. See how the rest of your picture stacks up with the free Financial Health Score.