Insurance

Life insurance: buy term, invest the rest

If anyone depends on your income — spouse, kids, aging parents — you need life insurance. For ~95% of families, that means level term life: cheap, simple, no cash value games.

How much?

• Quick rule: 10–12× your gross annual income, plus debts, minus liquid assets.
• DIME method (more precise): Debt (everything but mortgage) + Income (10–12 years) + Mortgage balance + Education (college per kid). Example: $15k debt + $900k income replacement + $350k mortgage + $200k college = ~$1.47M.
• Term length: until the kids are launched and the mortgage is manageable — usually 20 or 30 years. Ladder policies (e.g., $500k 30-yr + $500k 20-yr) to match shrinking need.

Stay-at-home parents need coverage too — replacing full-time childcare, house management, and logistics costs $50k–100k+/year. $250–500k of term is cheap protection.

Who doesn't need it: single, no dependents, no co-signed debt? Skip it (or keep a small policy if you want to lock in insurability).

Disability insurance: the most underrated policy

You're statistically far more likely to become disabled than to die before 65 — yet most people insure their life and not their paycheck. Your ability to earn is your biggest asset.

• Target: 60–70% of gross income in own-occupation coverage (pays if you can't do your job, not just any job).
• Employer group LTD is a start but usually caps at ~$5–10k/month and the benefit is taxable if the employer pays the premium. High earners need a supplemental individual policy.
• Key riders: non-cancelable/guaranteed renewable, cost-of-living adjustment, future increase option (buy more as income grows without new underwriting).
• Business owners: add business overhead expense insurance so the company survives if you can't work.

Health insurance & HSAs

One serious illness is the #1 cause of American bankruptcy. Never go uninsured — even a catastrophic plan beats nothing.

• Marketplace (ACA): HealthCare.gov — subsidies if your income is 100–400% of poverty level; compare total cost (premium + deductible + out-of-pocket max), not just premium.
• HDHP + HSA: if you're healthy and can cash-flow the deductible, a high-deductible plan paired with an HSA is usually the best deal — 2026 HSA limits: $4,400 single / $8,750 family (+$1,000 at 55+). Triple tax advantage; invest it, don't spend it.
• Open enrollment: usually Nov 1 – Jan 15 for ACA; employer plans have their own window. Miss it and you're locked in — calendar it.

Umbrella insurance: cheap lawsuit armor

Your auto/home policies cap liability at $100–500k. An umbrella adds $1–5M+ on top for roughly $150–400/year per $1M — the best value in all of insurance.

Get it if: net worth over ~$500k, you own a home, have teen drivers, a pool, a dog, rental property, or high public visibility. It also covers legal defense costs, which alone can bankrupt you.

Home, renters & auto

• Homeowners: insure for replacement cost, not market value (land doesn't burn). Know your exclusions — flood and earthquake need separate policies (FloodSmart.gov). Document belongings with a video walkthrough yearly.
• Renters: your landlord's policy covers the building, not your stuff or your liability. Renters insurance (~$15–25/month) is a no-brainer.
• Auto: carry liability well above state minimums (100/300/100 is a common baseline), add uninsured/underinsured motorist coverage, and raise deductibles to $1,000 once you have an emergency fund — the premium savings fund the risk.
• Shop every 2–3 years — loyalty is taxed in insurance. Compare at least 3 quotes; check insurer financial strength (AM Best) and your state's complaint ratios.

Long-term care

~70% of people over 65 will need some long-term care; nursing homes run $100k+/year. Options:

• Traditional LTC insurance: cheapest if bought in your mid-50s; premiums rise sharply after 60.
• Hybrid life/LTC policies: pricier but return premiums as a death benefit if care is never needed.
• Self-insuring: viable if you have $2M+ — earmark $300–500k mentally.
• Medicaid: the fallback of last resort — requires spending down nearly everything first.

What to skip (or scrutinize hard)

• Whole/universal life as an "investment": high fees, low returns, massive commissions. Buy term; invest the difference yourself. (Permanent insurance has narrow legitimate uses — estate liquidity, special-needs planning — get a fee-only advisor's opinion first.)
• Credit life / mortgage protection insurance: overpriced, shrinking coverage. Term life does the job better.
• Extended warranties & phone insurance: negative expected value by design; your emergency fund is the warranty.
• Accidental death (AD&D) as a substitute for life insurance: only pays for accidents — a fraction of deaths.

FAQs