Insurance you actually need

Insurance exists to protect you against losses you couldn't afford to absorb yourself. That's it. That's the whole point. The question 'do I need this policy?' is really the question 'could I write a check to cover this if it happened?' If yes, you probably don't need insurance. If no, you probably do.

The essential five

• Health insurance — medical bills are the #1 cause of US bankruptcy. Non-negotiable.
• Auto insurance (if you drive) — legally required, and liability coverage protects you from ruin.
• Renter's or homeowner's insurance — protects your stuff and, more importantly, your liability.
• Term life insurance — only if people depend on your income (spouse, kids). Skip it if they don't.
• Disability insurance — surprisingly overlooked, more likely to need than life insurance, often overlooked.

Often pushed, often unnecessary

• Whole life insurance — expensive, mostly commission. Term is almost always better.
• Extended warranties — the economics favor the seller every time.
• Identity theft insurance — a free credit freeze does more.
• Pet insurance — maybe useful for younger pets, but check the exclusions carefully.
• Cancer-specific or single-disease policies — duplicate your health insurance at high margins.