Insurance basics without the sales pitch

Insure the things you can't afford to replace. Self-insure the things you can. Everything else is a decision, not a rule.

The insurance framework

The right question for any policy is: 'if this event happened tomorrow, could I absorb the financial hit without derailing my life?' If yes, self-insure (skip the policy, keep the premium in savings). If no, insure it.

This means small deductibles are usually a bad trade — they raise premiums for events you can easily cover. Larger deductibles lower premiums and align insurance to what it's really for: catastrophic events.

Four essential policies

1. Health insurance

Non-negotiable in countries without universal coverage. A single serious illness can generate six-figure bills. Pick the plan that fits your expected use — high-deductible plans often win for healthy households, especially paired with an HSA.

2. Auto insurance

Liability coverage protects against causing an accident. Most states have minimums; most experts suggest going well above them because minimum limits often don't cover a serious accident.

3. Homeowner's or renter's insurance

Homeowner's is usually required by lenders and protects the largest asset most households own. Renter's insurance is cheap ($10–20/month typical) and covers belongings plus liability — a great deal even without a mandate.

4. Term life insurance (if anyone depends on your income)

Term life pays out if you die during a fixed term (10, 20, 30 years). Cheap, straightforward, and does what life insurance is supposed to do. Aim for 8–12× your annual income if you have dependents.

Optional / situational

• Disability insurance — critical if your paycheque is your main asset. Long-term disability often more important than life insurance.
• Umbrella liability — an inexpensive extra layer above auto and home for high-net-worth or lawsuit-exposed households.
• Long-term care insurance — expensive; more relevant later in life. Consider around age 55–65.

What to usually skip

• Extended warranties on electronics and appliances.
• Whole life insurance for pure protection needs (term is almost always more efficient).
• Rental car damage waivers if your credit card or auto policy already covers you.
• Accidental death riders on life insurance — cost/benefit is usually poor.
• Cancer or dread-disease specific policies — usually better addressed via strong health insurance.

Reviewing coverage

Shop rates every 2–3 years or after any life change (marriage, child, home purchase, income shift). Loyalty rarely earns discounts; shopping around often saves 10–30%.