Insurance Basics: What You Actually Need (And What’s a Waste)

Foundations · 10 min read

Insurance isn’t about security. It’s about math. It’s about identifying which financial catastrophes you can’t survive and protecting yourself against those. Everything else is marketing. Most people have it backwards — underinsured against the disasters that would destroy them, overinsured against the bumps they could handle.

$300K+

average lifetime healthcare costs per person in retirement

Fidelity Retiree Health Care Estimate

1 in 4

workers will be disabled for 90+ days before age 67

Council for Disability Awareness

$15/mo

average renters insurance cost vs total loss without coverage

NAIC

Here’s the framework: identify what would destroy you financially, and buy insurance for exactly that. Everything else is optional. Let’s walk through what you actually need.

The Insurance Framework

Insurance exists for one reason: to handle events that would cost more than you can pay. A $1,000 car repair? You should self-insure that. It hurts, but it doesn’t destroy your life. A catastrophic medical event costing $500,000? You cannot self-insure that. A house burning down and costing $300,000 to rebuild? Insurance. Identify what would destroy you financially, and buy insurance for exactly that.

Health Insurance

A single hospital stay can cost six figures. A cancer diagnosis can cost hundreds of thousands. This is non-negotiable — get health insurance. The question isn’t whether to buy it. It’s which plan to choose.

High deductible + HSA: If you’re healthy and young, this is usually the math winner. Lower monthly premium, higher deductible, but catastrophic costs are covered. The HSA is the only investment account with a triple tax benefit — tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses. Use it.

PPO: More flexibility, higher premiums, lower deductibles. Better for people who use healthcare frequently or have chronic conditions. Do the math on your expected medical spending, then choose.

Auto Insurance

Legally required in every state. Get at least $100,000 per person, $300,000 per accident in liability. If you cause a serious accident, this is the difference between losing your house and being fine. Cheap coverage here is penny-wise, pound-foolish.

Collision and comprehensive covers damage to your own car. Required if financed or leased. If you own it outright and it’s old, skip it. Uninsured/underinsured motorist covers you if someone without insurance hits you — it’s cheap and protects you against other people’s financial irresponsibility. Take it.

Renters or Homeowners Insurance

Your landlord’s insurance covers the building, not your belongings. If your apartment burns down, you lose everything unless you have renters insurance. It’s absurdly cheap — usually $10–20 per month — and covers your stuff plus liability if someone gets injured in your apartment.

Homeowners insurance is required if you have a mortgage. Get enough coverage to rebuild your home completely. Umbrella insurance adds extra liability on top of home and auto — about $150–200 per year for $1 million in coverage. If you own property or have assets to protect, this is worth it.

Life Insurance

If someone depends on your income, you need life insurance. If you’re single with no dependents, you probably don’t.

Term life covers you for a specific period (20 or 30 years). It’s cheap, pure insurance with no investment component. This is what most people need. Whole life covers your entire life and builds cash value, but it’s much more expensive and typically a worse financial choice for 99% of people. A rough rule: get 10–12x your annual income in term coverage.

Disability Insurance

This one is underrated. You’re more likely to be disabled for longer than 90 days during your working years than you are to die. Most people have life insurance and skip disability insurance — that’s backwards.

Disability insurance replaces 60–70% of your salary if you can’t work due to illness or injury. Check if your employer offers it — many do. If you’re self-employed, look into individual disability insurance. It protects your most valuable asset: your ability to earn income.

Insurance isn’t about feeling secure — it’s about math. Protect yourself against the catastrophes that would actually destroy you. Get the big ones right. Skip the rest. Extended warranties, credit card protection plans, accidental death add-ons — these are profit centers for companies, not protection for you.

The Quick Checklist

Health: Yes, always. Auto: Yes, required — get $100K+ liability. Renters/homeowners: Yes, essential. Life: Yes, if anyone depends on your income. Disability: Yes, if your employer doesn’t provide it. Umbrella: Yes, if you own property or have assets. Everything else: Evaluate on math, not fear.

Your action step for today

Pull up your current insurance policies this week. Check your health, auto, and renters/homeowners coverage against the framework above. If you don’t have disability insurance, ask your employer’s HR portal or get one quote from PolicyGenius. If you own property and don’t have umbrella insurance, get a quote — it’s usually under $200 a year for $1 million in protection.

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Fidelity Retiree Health Care Cost Estimate · Council for Disability Awareness · National Association of Insurance Commissioners