Insurance basics: which policies you actually need

The right way to think about insurance: it exists to protect you from outcomes you can't financially absorb. A $500 phone repair? Self-insure. A $400,000 medical bill or a lawsuit after a car accident? You need a policy.

What most people actually need

• Health insurance, non-negotiable. A serious illness without coverage is the #1 cause of personal bankruptcy in the U.S.
• Auto insurance (if you drive), minimum required by your state, plus enough liability coverage for a serious accident.
• Renters or homeowners insurance, replaces your stuff and covers liability if someone gets hurt on your property.
• Term life insurance (if anyone depends on your income), usually 10-20× annual income, 20-30 year term. Cheap when you're young and healthy.
• Long-term disability (if you have earned income), replaces a portion of income if you can't work. Often available cheaply through your employer.

What most people don't need

• Whole life insurance / cash value life insurance, almost always sold by commission, almost always worse than term life + investing the difference.
• Extended warranties on most products, the math favors the seller.
• Identity theft insurance, most credit cards and banks already offer free monitoring.
• Mortgage life insurance, sold to homeowners; term life almost always cheaper for the same coverage.

The deductible decision

Higher deductible = lower premium. The right answer depends on whether you can comfortably absorb the deductible from your emergency fund. If you have a real emergency fund, raising deductibles is one of the easiest ways to lower your premiums.

What this lesson is NOT

Insurance exists for catastrophic losses that could not be absorbed out of pocket, not for small or predictable costs. This lesson is the framework for telling those apart; it does not recommend specific policies, companies, or coverage amounts.