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.