Types of Insurance You Actually Need (And What You Can Skip)

Insurance is one of those expenses that feels like a waste — until you need it. The right coverage protects your finances from catastrophic losses. The wrong coverage wastes money on risks that don't apply to you. Here's a clear guide to what you actually need and what you can probably skip.

Insurance You Almost Certainly Need

Health Insurance

Medical costs are the leading cause of bankruptcy in the United States. Health insurance isn't optional — it's essential. If you don't have employer coverage, explore options through the Health Insurance Marketplace (healthcare.gov), Medicaid, or COBRA if you recently left a job.

When choosing a plan, consider the total cost: premiums plus likely out-of-pocket expenses (deductible, co-pays, coinsurance). A low-premium, high-deductible plan with an HSA (Health Savings Account) can be cost-effective for healthy individuals, while a higher-premium plan with lower out-of-pocket costs may be better if you use healthcare frequently.

Auto Insurance

If you own a car, liability coverage is legally required in nearly every state. Beyond the minimum, consider:

• Collision coverage: Pays to repair your car after an accident, regardless of fault.
• Comprehensive coverage: Covers non-collision damage (theft, weather, animal strikes).
• Uninsured/underinsured motorist coverage: Protects you if the at-fault driver doesn't have adequate insurance.

For tips on reducing your auto insurance costs, see our guide on saving money on car expenses.

Homeowner's or Renter's Insurance

Homeowner's insurance is required by mortgage lenders and covers your home and belongings against damage, theft, and liability claims. Renter's insurance — which is far cheaper — covers your personal property and liability even though you don't own the structure. It's one of the most underused and underpriced forms of insurance available.

Disability Insurance

Your ability to earn income is your most valuable financial asset. Long-term disability insurance replaces a portion of your income (typically 60%) if you're unable to work due to illness or injury. Many employers offer group disability coverage — check your benefits. If not, consider an individual policy, especially if you're the primary earner for your household.

Insurance You Might Need

Life Insurance

If anyone depends on your income — a spouse, children, aging parents — life insurance is important. Term life insurance (covering a set period like 20 or 30 years) is affordable and straightforward. Avoid whole life and universal life policies for most situations — they're expensive, complicated, and combine insurance with investing in an inefficient way.

A common guideline: coverage of 10–12 times your annual income, or enough to cover your dependents' financial needs until they're self-sufficient.

Umbrella Insurance

An umbrella policy provides extra liability coverage beyond what your auto and home policies cover. If you have significant assets to protect, an umbrella policy (typically starting at $1 million in coverage) is surprisingly affordable — often $150–$300 per year.

Insurance You Can Probably Skip

Extended Warranties

Extended warranties on electronics, appliances, and vehicles are rarely worth the cost. The items either fail within the manufacturer's warranty period or last well beyond the extended warranty. Self-insure by putting what you'd spend on warranties into your emergency fund instead.

Credit Card Insurance

Policies that make minimum credit card payments if you're unemployed or disabled are expensive relative to the benefit. Your emergency fund and disability insurance serve this purpose better.

Accidental Death Insurance

This only pays if you die in an accident — a narrow condition. A proper term life insurance policy covers death from any cause and is a better use of your premium dollars.

Specific Disease Insurance

Policies covering only cancer or other specific diseases are too narrow. Comprehensive health insurance covers treatment regardless of the diagnosis.

How to Save on Insurance You Need

• Shop around annually. Insurance rates vary widely between companies. Get quotes from at least three providers.
• Bundle policies. Many insurers offer discounts when you combine auto, home, and umbrella coverage.
• Raise your deductibles. Higher deductibles lower your premiums. Just make sure you can cover the deductible from your emergency fund if needed.
• Maintain good credit. In most states, insurers use credit scores to set premiums.
• Ask about discounts. Safe driver, non-smoker, home security systems, paperless billing — many discounts are available but not automatically applied.

Insurance should fit into your overall budget. Don't overpay for coverage you don't need, but don't skip essential protection to save a few dollars. The right balance protects your financial future without draining your present.