Insurance: protecting what you've built

Investing grows your money. Insurance stops one bad day from taking it away.

Insurance is a trade. You pay a small amount every month, called the premium. In return, the insurance company pays a big cost if something goes wrong. The best outcome is that you never need it.

What most people need

1. Health insurance. Medical bills are the most common cause of sudden debt in the US.
2. Car insurance, if you drive. Almost every state requires it. The “liability” part pays for damage you cause to other people.
3. Renters or home insurance. Renters insurance often costs $10 to $20 a month. It covers your things, and it covers you if someone gets hurt in your home.
4. Disability insurance. It pays part of your income if you can't work. Many employers offer it at a low price.
5. Term life insurance, but only if someone depends on your income: children, a partner, or parents you support.

What you can usually skip

• Whole life or universal life insurance sold as an investment. The fees are high. Most people do better with low-cost term life insurance, and investing the rest.
• Extended warranties on phones and electronics. If you could replace it from savings, you don't need to insure it.
• Credit card payment protection. Also rental car insurance that your credit card may already give you.

How much life insurance?

A common starting point is 10 times your yearly income. Choose a term that lasts until your youngest child is grown or your home is paid off.

For example, a healthy 30-year-old can often get $500,000 of 20-year term insurance for about $20 to $30 a month.

Check your coverage once a year, usually in the fall. Check it again when life changes: a marriage, a baby, a new home or a raise.