Skip to content
  • Home
  • Essentials
        • ESSENTIALS
        • Goals and Budgeting
          • Overview
          • Organizing Your Financial Life
          • Budgeting
          • Your Personal Net Worth
          • Setting Goals
          • Financial Planning
          • Planning Your Charitable Giving
        • Credit and Debit
          • Overview
          • Good Debt versus Bad Debt
          • How Credit Can Help—and Hurt
          • Understanding Your Credit Score
          • Preventing Identity Theft
          • Paying Off Student Debt
        • Estate Planning
          • Overview
          • Estate Plan Basics
          • Creating an Estate Plan
        • Types of Accounts
          • Overview
          • Choosing the Right Accounts
          • Individual Retirement Accounts
          • Employer Sponsored Retirement Accounts
          • Small Business Retirement Accounts
          • College Savings Accounts
          • Custodial Accounts
          • Understanding FDIC and SIPC Insurance
        • Saving
          • Overview
          • Why You Should Save and How Much
          • Making the Most of Your Paycheck
          • Saving for an Emergency
          • Eight Savings Fundamentals
        • Investing
          • Overview
          • Getting Started with Investing
          • Stocks, Bonds, and Cash
          • Fractional Shares
          • Socially Responsible Investing
          • Understanding Mutual Funds and ETFs
          • Creating an Investment Plan
          • Finding the Right Asset Allocation
          • The Advantages of Diversification
          • Benefits of Compound Growth
          • Tax-Smart Investing
          • The Importance of Monitoring and Rebalancing
        • Taxes
          • Overview
          • Income Taxes
          • Income Taxes for Children
          • Calculate Taxes
          • Payroll Taxes
        • Insurance
          • Overview
          • Insurance You Need
          • Individual Health Insurance
          • Group Health Insurance
          • Understanding Medicare
          • Disability Insurance
          • Life Insurance
          • Long-Term Care Insurance
          • Auto Insurance
  • My Life
        • MY LIFE
        • STARTING OUT
        • BUYING A CAR
        • MILITARY COMMUNITY
        • Buying a Home
          • Overview
          • Buy or Rent?
          • How Much House Can You Afford?
          • Mortgage Basics
          • Beyond Mortgage Costs
        • Jobs
          • Overview
          • Changing Jobs
          • What to Do If You Lose Your Job
          • Managing Your Finances as You Change Jobs
          • Protecting Your 401(k)
        • Getting Married
          • Overview
          • Planning and Paying for a Wedding
          • Marrying Your Finances
          • Prenups: Do You Need One?
        • Starting a Family
          • Overview
          • Budgeting for a Child
          • Insurance and Estate Planning Needs
          • Planning for a Child's Education
        • Divorce
          • Overview
          • Preparing Your Finances for Divorce
          • Protecting Yourself During a Divorce
          • Managing Money After a Divorce
        • Helping Aging Parents
          • Overview
          • Talking Money with Aging Parents
          • Insurance Needs
          • Managing Income and Investments
          • Knowing Their Wishes
          • Social Services
        • Losing a Loved One
          • Overview
          • Handling Finances After Loss
          • Special Guidelines for Loss of a Spouse
        • Retirement
          • Overview
          • Starting Retirement
          • Nearing Retirement
          • Enjoying Retirement
  • Money Talk
        • MONEY TALK
        • Planning & Goals
        • Investing Basics
        • Insurance
        • Education Savings
        • Couples & Families
        • Kids & Teens
        • Estate
        • Retirement
        • Major Purchases
        • Banking, Credit & Debt
        • Budgeting & Saving
        • Taxes
        • About Money Talk
  • Teaching Kids
        • TEACHING KIDS
        • Basics
          • Overview
          • Rules of the Road at Every Age
          • Budgeting
        • Saving
          • Overview
          • Starting the Savings Habit
          • Motivating Your Kids to Save
          • Tips for Parents with Kids and Teens
        • Investing
          • Overview
          • Introducing Kids to Investing
          • Important Investing Concepts
          • Benefits of Early Investing
          • Investment Accounts for Kids
        • Giving Back
        • Life Lessons
          • Overview
          • Tips for Financial Success
          • Managing an Allowance
          • Help Teens use Credit Wisely
        • Buying a Car
          • Overview
          • Your Teen's First Car
          • Assessing Your Teens Needs and Budget
          • Cash or Financing?
          • Auto Insurance
        • First Job
          • Overview
          • Your Teen's First Job
          • Income Tax Basics
          • Payroll Tax Basics
          • Getting Serious About Saving
        • Going to College
          • Overview
          • Costs Beyond Tuition
          • Life Away from Home
        • Leaving the Nest
          • Overview
          • A Checklist for Leaving Home
        • Activities and Resources
          • Overview
          • Overview
        • Categories
          • Overview
          • Classroom Curriculum
        • Age Groups
          • Overview
          • Elementary School
          • Middle School
          • High School
  • Teen Academy
        • GOALS AND BUDGETING
          • Overview
          • Dream Big, Save Smart: How to Set Money Goals
          • Who Needs a Budget? Well, Everyone—Even You!
          • Spending Reality Check: Do You Need It or Just Want It?
        • JOBS
          • Overview
          • Got Your First Job? Understand Your Paycheck
        • CREDIT AND DEBT
          • Overview
          • Spend Smart: How to Use a Credit Card the Right Way
        • COLLEGE
          • Overview
          • Financial Aid 101: How to Pay for College
        • INVESTING
          • Overview
          • This Cool Investing Feature Is the Key to Reaching Your Goals
          • How to Invest Like a Boss—As a Teen
  • Tools & Resources
        • TOOLS AND RESOURCES
        • Worksheets
        • Calculators
        • Spending Tracker
        • Monthly Budget Planner
        • Financial Fitness Quiz
        • Documents and Forms
          • Overview
          • Form W-4
          • Form W-2
          • Form 1099
        • Financial Glossary
  • Foundation
      • FOUNDATION
      • Moneywise America
Search

Insurance You Need

Learn what kind of insurance is worth the money—and what you can skip.

Our two cents

Two Cents icon

Our two cents

Insurance is one of those expenses that can seem discretionary—until you need it. Then it can be the best money you ever spent. The right type of insurance is essential to your overall financial security.

Don't waste money by allowing yourself to be persuaded that you need protection when you don't. Extra car rental insurance is a good example, since you probably already have such coverage. Learn the distinctions and make informed decisions.

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

What's necessary:

Health insurance

Health insurance

Health care is not cheap, and a serious injury or hospital stay can set you back thousands of dollars. Therefore, it is essential that 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
     
  • Medicare
     

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

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 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.

Disability insurance

Disability insurance

This protects your earning power. Many employers offer some type of disability insurance, many of which cover 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

Life insurance

Not everyone needs life insurance. The important thing is to make sure you have it if you have dependents—and have the right type. At its most basic, life insurance falls into two categories: term (or "temporary") and permanent (or "cash value"). Calculate how much life insurance you need.

  • Term life is pure insurance: You purchase a policy for a set length of time (the term) at a pre-established premium. It can replace your income in the event of your death. It can also make sense if you have a big expense ahead, such as college tuition, that you want to make sure is covered. Depending on the policy, the premium can increase, stay the same, or decrease over time. Unless you renew when the term is over, you no longer have coverage. Although it's the least expensive way to purchase life insurance, it can be very expensive (or impossible) to renew as you get older or develop health problems.
     
  • Permanent life provides coverage for an indefinite length of time or for the life of the insured, and features an investment, or "cash value," component. As long as you continue to pay your premiums, you have coverage for life. If you purchase a policy at a relatively young age, the premiums will be higher than for term insurance 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. You also pay commissions and fees. Depending on the policy, you can either borrow against this cash value or apply it to future premiums.
     
  • Universal life insurance is a type of hybrid policy that provides a flexible premium structure with a cash-value component. In addition, there are many other variations of permanent policies. Always be sure that you understand all the terms and risks before you make a purchase.

Homeowner's insurance

Homeowner's insurance

If you own your home, make sure you have adequate coverage to protect it as well as your possessions. Depending on where you live, you may want to add earthquake or hurricane insurance. However, be wary of lump policies that protect you from a variety of natural disasters. For instance, if you live in the desert, you probably don't need flood protection.

Renter's insurance

Renter's insurance

Your landlord's policy will cover damage only to an apartment or house, not your possessions. A renter's policy usually covers damage or loss due to events such as fire, theft, and vandalism and may protect you from damage due to things like faulty wiring, water, or weather. In general, renter's insurance is inexpensive and a wise purchase.

Umbrella insurance

Umbrella insurance

For extra protection, you might also consider an umbrella policy. This provides coverage above and beyond your car or homeowner's insurance if 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)

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 finances.

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

What you can 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 don't need private mortgage insurance. Here are other types of insurance that are generally unnecessary:

  • Life insurance for kids—Remember, life insurance is mainly 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 higher than average pet health care costs.
     
  • Flight insurance—If you have adequate health and life insurance, that's probably sufficient.
     
  • Wedding insurance, cancer insurance, and extended warranties on appliances—Generally, these are non-essential.

(1016-3498)
  • About the Foundation
    • Foundation
    • Moneywise America
  • Money Talk
    • Money Talk
    • Planning & Goals
    • Investing Basics
    • Insurance
    • Education Savings
    • Couples and Families
    • Kids and Teens
    • Estate
    • Retirement
    • Major Purchases
    • Banking, Credit & Debt
    • Budgeting & Saving
    • Taxes
    • About Money Talk
  • Essentials
  • My Life
  • Teaching Kids
  • Tools and Resources

This information on this website is for educational purposes only, and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation funded by The Charles Schwab Corporation. It is not part of Charles Schwab & Co., Inc. or its parent company, The Charles Schwab Corporation.

© 2025 Charles Schwab & Co., Inc. ("Schwab"). All rights reserved. Member SIPC.

(0624-1EZE)