Having the right insurance coverage is a key component of living a financially healthy life. But loading up on unnecessary policies can work against you. Here are the policies that are truly must-have—and which you can probably skip.
Insurance You Need
This one’s a no-brainer. Not only will you owe a tax penalty for not having it—in 2018, at least—but nothing wrecks a budget faster than an uninsured trip to the ER, which cost an average of nearly $2,000 in 2016.
Renters’ and homeowners’ insurance
Most mortgage lenders require borrowers to have a homeowners’ insurance policy; many apartment landlords require the same for renters. Even if yours doesn’t, it’s likely still worth the relatively small expense.
In addition to protecting valuables, like your jewelry or electronics, in case of a fire or other disaster, renters’ insurance may even cover things like the cost of spoiled food if your fridge breaks or the power goes out—all for less than $20 per month.
Accidents happen, even to safe drivers. Most states require car owners to at least have basic liability coverage, which pays for damages and injuries you cause to others. But you likely need more than the minimum legal amount, particularly if you have valuable assets (like your home) that could be vulnerable in a lawsuit.
Your income is even more valuable than your house or car, so it’s worth protecting it in the event you’re sick or injured for an extended time. “If something happens to you, you still need to be able to pay your bills and living expenses,” says J.C. Matthews, co-founder of online insurance agency Simply Insurance.
Pet health bills can easily rival ours. For example, X-rays average a few hundred bucks, and a year of pet cancer treatment can cost thousands. Insurance for pets often starts at $15 to $25 per month (though varies based on the animal and other factors) but can save you thousands if you end up with a big vet bill.
Insurance You (Usually) Don’t Need
Buy a strong case and focus on building up an emergency fund that can handle the $500 to $1,000 expense you’ll face if a mishap occurs with your phone. Most plans carry high deductibles—$200 or more for the most expensive phones—and have various coverage restrictions (like not covering water-damaged or lost or stolen devices) that make picking the right policy tricky.
For most domestic trips, there’s not enough risk to justify springing for insurance, which typically covers canceled trips due to injury or bad weather. (You also usually need to purchase the policy weeks in advance for it to kick it.) While airlines generally will not give you money back on non-refundable tickets, they may make an exception—or at least offer credit—in the event of a verifiable illness or accident.
Most credit card companies will offer extra coverage when you swipe your card for major purchases. Just be sure to keep your store receipt and a copy of the manufacturer’s warranty to make a claim.
Rental car insurance
You probably covered—either through your credit card again or your auto insurance. “If you’re already covered, then anything you spend [at the rental car counter] on insurance is just lost money,” says Keith Moore, CEO of online insurance agency CoverHound.
ID theft insurance
The actual out-of-pocket cost of ID theft is typically low (a median $300), and most banks and credit card issuers will reimburse you for fraudulent use.
When It Depends…
Life insurance for yourself
This is a must if you’ve got kids or other dependents. If you don’t, it may not be worth the $115 average monthly premium. “Ask yourself: If my income disappeared tomorrow, who would be affected?” says Certified Financial Planner Kristen Euretig. “If the answer is ‘no one,’ you don’t need life insurance.”
LIfe insurance for your kids
If your kids are older and you’ve co-signed their loans and would have trouble paying them on your own, this is worth considering. Otherwise, skip it, guilt-free.
If you’re in a flood zone (find out here) or an area that’s prone to major weather events like hurricanes or earthquakes, specialized insurance might be wise. Before making the purchase, though, consider your real risk of disaster and find out what is (and isn’t) covered by your homeowners’ policy.