Learn what kind of insurance you need—and what you can do without.

Insurance is one of those expenses that can seem discretionary—until you need it. Then it can be the best money you ever spent. In fact, the right type of insurance is a key part of your overall financial security. There are certain areas you just can’t afford to ignore.

Of course, not everyone needs the same coverage—to a large extent it depends on your personal and financial situation. Here are important areas to review to make certain you’re adequately covered.

The essentials.

Health insurance

With soaring health care costs, a serious injury or surgery that might require a hospital stay can set you back thousands of dollars. That's why it's essential to buy insurance before you actually need it. Insurance won't immediately cover medical problems or conditions that started before you purchased the policy.

Make sure you have the most complete and cost-effective coverage available. Take a look at the Health Insurance Marketplace to comparison shop. You can also review these different types of policies to determine the right choice for you:

Group plans (HMOs, PPOs, and POSs)

Individual plans


If you don't have adequate medical coverage through your employer or another group, you need to consider your options. Possible alternatives include:

  • A low-cost, high-deductible policy to cover major expenses
  • Coverage available at a lower group cost through membership in a professional, educational, or religious organization
  • Student health insurance through a college or university
Car insurance

Most states require you to carry at least basic liability insurance to cover damage you may do to others, including both bodily injury and property damage. Liability insurance also pays for potential legal bills. You can also choose to expand your coverage to pay for a variety of other possible costs like damage to your car in case of a collision, vandalism, fire, or theft. First-time car buyer? Learn more about auto insurance.

Insurance for extra protection.
Disability insurance

This type of insurance protects your earning power. Many employers offer some type of disability insurance, often covering about 60% of your salary. A few states offer short-term disability insurance. The Social Security Administration also offers limited disability coverage. Look into your current coverage. If a work disruption would be a financial hardship, learn more about what a private disability policy offers.

Life insurance

Not everyone needs life insurance. The important thing is to make sure you have it if you need it—and have the right type to suit your needs. There are two basic types of life insurance:

  • Term life, purchased for a fixed number of years, is an inexpensive option if you have kids or other loved ones who are dependent on your earnings for a set period of time. It can replace your income in the event of your death. It can also make sense if you know there's a big expense ahead, such as college tuition, that you want to make sure is covered.
  • Permanent life (also called Cash Value) provides coverage for an indefinite length of time or for the life of the insured, and features an investment, or "cash value," component. If you purchase a policy at a relatively young age, the premiums will be higher than for a comparable amount of term insurance. This is because a percentage of each premium goes into an account managed by the insurance company, called the cash value account, which is designed to grow tax-deferred.
Homeowner's insurance

If you own your home, make sure you have adequate coverage to protect both your dwelling and your possessions. Depending on where you live, you may want to add on earthquake or hurricane insurance for good measure.

Renter's insurance

Your landlord's policy will cover only damage to the dwelling, not to your possessions. A renter's policy usually covers events such as fire, theft, and vandalism, and may protect you from damage due to things like faulty wiring, water, or weather.

Umbrella insurance

For extra protection, you might also consider an umbrella policy. This provides coverage above and beyond your car or homeowner's insurance in the event that you are sued for an injury caused by you or your property. Umbrella policies are generally reasonably priced and can be smart coverage, especially for high-net-worth individuals. You can often get up to a million dollars in coverage for a few hundred dollars a year.

Long-term care insurance (LTCI)

The U.S. Department of Health and Human Services estimates that at least 70% of people over 65 will require some type of long-term care services at some point. Long-term care insurance isn't cheap, and premiums and benefits vary widely. But whether you're concerned for yourself or for aging family members, think about how the cost of care vs. insurance would affect your overall financial health.

You'll find more detailed information and answers to commonly asked insurance questions at the Insurance Information Institute.

Types of insurance you can often do without.

Certain insurance types are usually just a waste of money. For instance, if your mortgage is below 80% of the cost of your home, you probably don't need private mortgage insurance. Here are other types of insurance that are generally unnecessary:
  • Life insurance for kids—Remember, life insurance is for those who have dependents.
  • Car rental insurance—This is usually covered by your own auto insurance and by some credit cards.
  • Pet insurance—Premiums can often be larger than average pet care costs.
  • Flight insurance—If you have adequate health and life insurance, that's probably sufficient.
  • Wedding insurance, cancer insurance, and mortgage life insurance—All are types you can generally avoid. 

Investing involves risk, including possible loss of principal.

The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager.

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