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There’s no price tag on peace of mind, right? Having adequate insurance is an important safety net to protect your finances in case of an emergency. But as you work toward financial confidence, you should only purchase insurance to protect against events that could be financially catastrophic without insurance—think a car crash, a fire or a pricey hospital stay that prevents you from working. Understand the amount of insurance you need to help protect yourself and your belongings (while also protecting your savings). 

Essential coverage

Some types of insurance—like auto insurance—are required by law. (And if you get in an accident, you’ll be glad you had it!) And other types of insurance are key for building up financial confidence. These are the types of coverage you should almost always pursue. Calculate the amount you need of:

When to update your policies

As you move through life, your priorities will change, which might translate to a change in insurance coverage. Be sure to review your policies during the following life events and update to be sure you still have the right coverage:

  • Going to college
  • Getting married or divorced
  • Buying or selling a home
  • Having a child
  • Changing jobs
  • Reaching retirement

Think twice about buying too many policies

Remember, you should only purchase insurance against potential financial falls that you wouldn’t be able to recover from without the insurance. Some types of coverage may sound like a good idea. For example, are you finally taking that expensive vacation you’ve carefully budgeted for? Travel insurance might sound like a good idea if you are worried that weather or an unexpected emergency could cause you to cancel. But first remember to check whether some of the items travel insurance covers (like rental cars or lost baggage) are covered in policies you already have (such as auto or homeowners policies).

Challenge: Rather than spending your money on monthly premiums, it can often be a better use of your dollars to build up your financial confidence account (FCA) to cover unexpected out-of-pocket claims.

Choosing the right insurance partner

It’s important to find a partner you trust and who understands your needs. The insurance agent should be aiming to educate you, rather than simply sell you their products.

Challenge: When it’s time to purchase insurance, you should obtain multiple quotes from reputable companies. Being able to ask a real-life agent your questions will help you have discussions rather than just digesting sales pitches.

Even though online tools allow you to research and shop, many people still prefer interacting personally with an expert agent:

  • Fifty percent of people talked to an agent when their auto insurance was up for renewal, compared with 39 percent who shopped online and 37 percent who shopped on the phone.6
  • Twenty-nine percent of people met with agents to compare homeowners insurance prices, compared with 24 percent who shopped on the phone and 17 percent who shopped online.7
  • Fifty percent of consumers prefer to purchase life insurance with a financial advisor or agent in person, compared with 21 percent shopping online.8
3 Key Takeaways
  1. You need some types of insurance coverage to help protect yourself from major, unexpected expenses.
  2. Overspending on premiums can harm your finances rather than leave you more prepared for unexpected events.
  3. Find the right insurance partner who understands you and who is focused on helping you learn.

Challenge yourself

Another important way to protect what you care about the most is through estate planning. Keep reading: Learn how you can think about estate planning no matter what stage of life you’re in.

1 “Auto Insurance Facts and Statistics,” Insurance Information Institute

2 “Homeowners and Renters Insurance Facts and Statistics,” Insurance Information Institute

3 “2017 Life Insurance Statistics And Facts,” May 3, 2017, Bestliferates.org

4 “Even Insured Can Face Crushing Medical Debt, Study Finds,” Jan. 5, 2016, New York Times

5 “Insurance benefits: Access, participation, and take-up rates, civilian workers,” March 2016, Bureau of Labor Statistics

6 “Insurance Shopping In The Digital Age,” July 2016, Insurance Information Institute

7 “Homeowners Insurance: Understanding, Attitudes and Shopping Practices,” February 2017, Insurance Information Institute

“Life Insurance Facts and Statistics,” Insurance Information Institute

This content is educational in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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