Insurance You Need vs Insurance They're Selling You
The one rule that changes everything
Insure catastrophic risks. Self-insure everything else.
That's it. If something would financially ruin you — insure it. If it would just be annoying or inconvenient — pay for it yourself if it happens. Insurance companies make billions selling you coverage for things that won't ruin you, betting you'll never do the math.
“Insurance should protect you from disaster, not from mild inconvenience.”
What you actually need
Most people are either over-insured on nonsense or under-insured on what matters. Here's the honest breakdown:
- •Health insurance (catastrophic risk, legally required)
- •Term life insurance (if others depend on your income)
- •Disability insurance (if you work, insure your income)
- •Auto insurance (legally required, liability is key)
- •Homeowners/renters insurance (protect assets)
- •Umbrella policy (if high net worth)
- •Whole life insurance (expensive, usually bad deal)
- •Extended warranties (rarely worth it)
- •Credit card insurance (overpriced, redundant)
- •Rental car insurance (credit card covers it)
- •Disease-specific insurance (too narrow)
- •Pet insurance (usually breaks even at best)
Term life insurance: what you need
If anyone depends on your income — a spouse, kids, aging parents — you need term life insurance. If you died tomorrow, term life replaces your income so they can stay afloat.
The calculation is simple: take your annual income and multiply by 10-12. That's your coverage amount. Get a 20-30 year term (the period your dependents need you most).
Term life is cheap because most people outlive the policy — which is exactly what you want. You're protecting against the worst-case scenario, not trying to make money.
Whole life vs term life: the real numbers
Whole life insurance is the most oversold financial product in America. Salespeople love it because commissions are massive. But for most people, it's a terrible deal.
- •$40/month for $1M coverage (30 years)
- •Invest remaining $460/month at 7% return
- •After 30 years: $565,000 in investments
- •Total cost: $14,400 in premiums
- •$500/month for $1M coverage (lifetime)
- •Cash value grows at ~3-4% (after fees)
- •After 30 years: ~$200,000 cash value
- •Total cost: $180,000 in premiums
The pitch sounds good: permanent coverage, builds cash value, you can borrow against it. The reality: you pay 10x more for worse investment returns and complex rules. Buy term life, invest the rest in index funds, and you'll have far more money.
Disability insurance: the one people forget
If you work for a living, your income is your biggest asset. And you're far more likely to become disabled than to die during your working years.
Many employers offer group disability insurance — take it. If not, buy an individual policy that covers 60-70% of your income. Look for 'own occupation' coverage (pays if you can't do your specific job, not just any job).
The stuff you don't need
Here's where insurance companies make their real money: selling you coverage for things that won't actually hurt you financially.
Skip these every time
- Extended warranties on electronics — most break after the warranty expires anyway, or never break at all
- Credit card insurance — overpriced, and often redundant with existing coverage
- Rental car insurance — your credit card or auto policy likely covers it already
- Disease-specific insurance — if you have health insurance, it's covered. These are too narrow.
- Pet insurance — emotionally appealing, but the math rarely works. Save the premiums instead.
- Flight insurance — statistically unnecessary, and any real loss is covered elsewhere
These products exist because they're profitable, not because you need them. The sales pitch preys on fear and worst-case thinking. Don't fall for it.
When insurance companies win
Insurance works when the risk is catastrophic and rare. Insurance companies lose money when your house burns down. They make money when you buy pet insurance for 10 years and file one $300 claim.
“If the insurance company is aggressively selling it to you, it's probably a good deal for them, not you.”
This is why whole life insurance ads are everywhere, but you'll never see a commercial pushing term life. The profit margin on whole life is enormous. The profit margin on term life is tiny.
What you need to do
Your insurance checklist
- If you have dependents: get term life insurance (10-12x income, 20-30 year term)
- If you work: get disability insurance through your employer or buy individual coverage
- If you drive: get auto insurance with solid liability coverage (legal requirement)
- If you own a home: get homeowners insurance. If you rent: get renters insurance (it's cheap).
- If you have significant assets: consider an umbrella policy for extra liability protection
- If anyone tries to sell you whole life, extended warranties, or disease-specific insurance: say no
Get quotes from PolicyGenius or directly from insurers like State Farm, Geico, or Nationwide. Don't use an insurance agent who earns commission — they'll push whole life and products you don't need.
Insurance should be boring. It should be something you buy once, forget about, and hope you never use. If someone is making it sound exciting or complicated, they're selling you something you don't need.