What Kind of Insurance Do You Need?

Find out the 5 types of insurance you really need and how much is enough.

Laura Adams, MBA
6-minute read
Episode #158

Type #3: Life Insurance

Life insurance is critical when your death would create a financial hardship for those you leave behind, such as a spouse or children. If you’re single, or no one depends on your income, you either need a very small policy for your funeral expenses or none at all.

If you have a stay-at-home spouse who cares for your children, you probably also need a small policy on their life to cover future child care costs. You should never buy life insurance on children, because they’re the ones meant to benefit from insurance proceeds.

There are two basic kinds of life insurance—term and permanent:

  • Term life insurance provides a benefit upon the death of the policy owner for a set period of time such as 10 or 20 years. I prefer term insurance because it’s inexpensive and gives you the most benefit for the dollar.
  • Permanent life insurance includes a variety of products such as whole life, universal life, and variable life. I won’t get into the details on each of those, but they provide a death benefit and an investment all wrapped up in one. They’re also called permanent life policies because you get lifetime coverage.

A basic rule of thumb is to purchase a policy that’s at least 10 times your income. So if you make $50,000, you might need a policy that would pay your beneficiary $500,000. But factors like the number of children you have, education expenses, mortgage payments, and the lifetime income needs of a surviving partner or spouse should come into play.

See also: 5 Facts To Know About Term Life Insurance


If you don’t have life insurance though work, or if you do but it isn’t enough, figure out how much you need. A great place to start is the How Much Insurance Do I Need? Calculator at Bankrate.com.

Type #4: Auto Insurance

Auto insurance is required by most states. It's a collection of policies that protect you against financial loss in 3 major ways:

  • Property coverage pays for damage to your car. A comprehensive portion pays for damage that wasn’t the result of an accident, like for vandalism, storm damage, or theft. And there’s a collision portion that covers damage that was the result of an accident.
  • Liability coverage pays for your legal obligations to others for damaging their property or harming them in an accident.
  • Medical coverage pays for the cost of treating accident injuries, and sometimes for lost wages and funeral expenses.

Every driver should have liability and medical coverage; however, you may not need comprehensive or collision depending on the age and condition of your vehicle. For an older car, it may not be worth it.

You should have enough auto insurance to cover the total value of your all assets—such as your home, vehicles, savings accounts, and non-retirement investments—if you were involved in a lawsuit.

See also: What You Should Know About Credit-Based Insurance Scores


Rates vary depending on factors like your driving record, vehicle, and credit (in most states). Choosing a higher deductible will lower your monthly premium. You can shop auto insurance at sites like carinsuracequotes.com and insureme.com.

Type #5: Homeowners Insurance

Homeowners insurance is important to protect the replacement value of your home and its contents. It’s a requirement when you have a mortgage.

Basic home insurance pays for claims when a natural disaster, such as a fire, tornado, or hail storm, damages your property. Your possessions, like furnishings, clothes, and jewelry, are generally covered up to certain limits.

There’s also a liability portion that covers you if someone gets hurt while they’re on your property.

Renters also need renters insurance to cover their belongings in the event of a natural disaster or theft, for instance. You can compare rates for home or renters policies at sites like insurancequotes.com or insweb.com.

See also: Your Guide to Renters Insurance

You work hard to build wealth and have a comfortable life, so remember to protect it by reviewing your insurance needs each year. 

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.