You need insurance for your health, your car, your home, and your income, because most people can't cover those on their own. Health insurance keeps a hospital stay from draining your savings, auto insurance keeps a crash you caused from reaching your wages, and renters or homeowners insurance pays to replace your belongings or rebuild the house you live in.
Your income takes two policies to protect. Disability insurance replaces part of your paycheck when illness or injury stops you from working, and life insurance replaces that paycheck permanently for the people who live on it.
You can skip coverage that is sold at a checkout counter for one appliance or one illness. Those replace losses you could pay for yourself, and the same money buys more as higher limits on the policies above.
Key Takeaways
Health insurance pays hospital bills that run past most people's savings. Uninsured patients are also billed at higher rates than insurers negotiate for the same treatment.
Auto liability coverage pays for the people you injure. Nearly every state requires it, and the bills for a serious injury crash follow you personally once they pass your limit.
Renters insurance replaces everything you own for an average of $170 a year. That figure comes from the most recent data the Insurance Information Institute publishes, and the policy also pays when a guest is injured in your apartment.
Disability insurance replaces part of your paycheck when you can't work. The Social Security Administration puts a 20-year-old worker's odds of a disability before full retirement age at one in four.
Life insurance pays the people who depend on your income. If nobody would struggle financially without your paycheck, you can wait.
Summary generated by AI, verified by MoneyLion editors
MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms and fees from different lenders and choose the best offer for you.
What Insurance Does Everyone Need?
Most people need health insurance, auto insurance, renters or homeowners insurance, and disability insurance to cover the losses that generally can't be paid for out of pocket.
Health insurance. A single surgery or a few days in a hospital can cost more than a year of income, and hospitals bill uninsured patients at rates far above what insurers pay.
Auto insurance. Nearly every state requires liability coverage before you can register a car, and it pays the medical bills and repairs of anyone you injure. Those costs can otherwise go into the thousands.
Renters or homeowners insurance. Renters insurance replaces your belongings after a fire or a burglary, and homeowners insurance rebuilds the structure. Both pay for injuries that happen in your home.
Disability insurance. It replaces part of your paycheck when illness or injury keeps you from working. Most people get it through an employer.
When Do You Need Life Insurance?
Buy life insurance when someone else would struggle financially if your income stopped. That means a spouse who counts on two paychecks, children at home, a parent you support, or a business partner who signed a loan with you.
Most people should buy term coverage, which lasts 20- or 30- years and costs a fraction of what permanent coverage costs. To determine how much coverage to get, add the income your household would need, the debts left behind, childcare, and college costs, then subtract your savings and any coverage you already have at work.
Single adults with no dependents and no shared debt can wait. Anyone who cosigned a loan is the exception, because the cosigner inherits that balance.
Do You Need Disability Insurance?
Disability insurance replaces part of your paycheck when illness or injury stops you from working, and you need it if your savings would run out within a few months of your income stopping. The Social Security Administration puts a 20-year-old worker's odds of developing a disability before full retirement age at one in four.
Employer coverage usually replaces 60% of base pay and stops there, and the benefit is taxable when your employer pays for it. An individual policy on top raises how much of your income keeps arriving, and the benefit is tax free when you pay the premium yourself.
Ask your employer what you already have before you shop. Short-term and long-term disability are separate benefits, and plenty of companies offer one without the other.
What Insurance Can You Skip?
A policy covering one appliance, one illness, or one lender pays out less than it costs, because the loss it covers is either small enough to absorb or unlikely enough that you're paying for a payout that never comes.
Extended warranties on electronics and appliances. The price approaches the cost of replacing the item, and manufacturer warranties and credit card benefits often cover the first year already.
Credit life and credit disability insurance. These pay your lender rather than your family, and cost more than a term life policy that covers the same debt and everything else.
Single-disease policies. A cancer-only plan pays nothing when the diagnosis is a heart condition, and your health insurance covers the treatment either way.
Rental car coverage sold at the counter. Your auto policy and many credit cards already cover rental cars, so buying it again pays for the same protection twice.
How Do You Decide What to Buy First?
Buy health insurance first, during open enrollment or the special enrollment period a job change opens. Then set your auto liability limits high enough to cover what you own, because a judgment above those limits comes out of your wages and savings.
Renters or homeowners coverage comes next and costs little against what it replaces. Disability and life insurance follow once someone depends on your income, and buying them younger locks in lower premiums, since insurers price on age and health.
Most households spend under 10% of gross income on insurance altogether, though your health plan and where you live move that number. Raising deductibles lowers every premium you pay, so keep enough in savings to cover the largest one before you make that trade.
Frequently Asked Questions
How much insurance is too much?
Coverage costs you money when it duplicates something you already have or insures a loss you could pay for yourself. For example, many people buy rental car coverage though they already have it through their credit card. Another example is single-disease plans layered on health insurance, and warranties on cheap electronics. Canceling them frees up money for higher liability limits.
Do I need insurance if I'm young and healthy?
Health insurance still matters at any age, because a car crash or a burst appendix produces the same bill no matter how healthy you were that morning. Renters and auto coverage apply the same way, while life insurance can wait until someone depends on your income.
Is renters insurance worth it?
Renters insurance pays to replace everything you own after a fire, a burst pipe, or a burglary, and it covers legal costs when a guest is injured in your apartment. Your landlord's policy covers the building and nothing inside it that belongs to you.
Does my employer's insurance cover everything I need?
Employer plans usually include health insurance plus some life and disability coverage, at limits below what most households need. Group life is often one or two times your salary, group disability replaces roughly 60% of base pay, and both end the day the job does.
Key Terms to Know
Premium. What you pay to keep a policy active, usually monthly or every six months.
Deductible. What you pay out of pocket before the insurer pays the rest of a claim.
Liability coverage. The part of a policy that pays other people for injuries and damage you cause.
Term life insurance. Coverage that lasts a set number of years and pays only if you die during that time.
Long-term disability insurance. Replaces part of your income when illness or injury keeps you out of work for months or longer.
Umbrella policy. Adds liability coverage on top of the limits in your auto and home policies.
Sources
Social Security Administration: Disability Benefits
Insurance Information Institute: Facts + Statistics: Renters insurance
National Association of Insurance Commissioners: NAIC Releases 2022/2023 Auto Insurance Database Report
You may like
Community Posts
Similar Posts
Disclosures
MoneyLion does not provide, nor does it guarantee, any third-party product, service, information, or recommendation. The third parties providing these products or services are solely responsible for them, as well as all other content on their websites. MoneyLion is not liable for any third party's failure with regard to those advertised products, services, and benefits. These advertised products and services may not be FDIC insured or bank-guaranteed, and may be subject to a different privacy policy than MoneyLion’s. You should check individual offers, products, and services to become familiar with any applicable restrictions or conditions that may apply. MoneyLion may receive compensation from third parties for referring you to the third party, their products or to their website.
Instacash® is an optional service offered by MoneyLion. Your available Instacash Advance limit will be displayed to you in the MoneyLion mobile app and may change from time to time. Your limit will be based on your direct deposits, account transaction history, and other factors, as determined by MoneyLion. Expedited delivery requires Turbo Fee. See Instacash Terms and Conditions for more information and eligibility requirements.
MoneyLion is a financial technology company, not a bank. MoneyLion Spend demand deposit account provided by, and MoneyLion Debit Mastercard® issued by, Pathward®, National Association, Member FDIC. MoneyLion Spend is a service mark of MoneyLion. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International. Funds are FDIC insured, subject to applicable limitations and restrictions, when we receive the funds deposited to your account.
Instacash is a 0% APR cash advance service provided by MoneyLion. Your available Instacash advance limit will be displayed to you in the MoneyLion mobile app and may change from time to time. Your limit will be based on your direct deposits, account transaction history, and other factors as determined by MoneyLion. This service has no mandatory fees. You may leave an optional tip and pay an optional Turbo Fee for expedited funds delivery. For a $40 Instacash advance with a Turbo Fee of $4.99, your repayment amount will be $44.99. Generally, your scheduled repayment date will be your next direct deposit date. An Instacash advance is a non-recourse product; you will not be eligible to request a new advance until your outstanding balance is paid. See Membership Agreement and help.moneylion.com for additional terms, conditions and eligibility requirements.