What Insurance Do You Actually Need?
I’ve found most people buy insurance reactively—a friend dies and suddenly they want life insurance, they buy a house and get homeowners insurance, their employer offers benefits and they check a box. Then they never think about it again.
The result is a patchwork of policies that don’t fit together. Overinsured on some things, dangerously underinsured on others. Paying for coverage they don’t need while leaving real gaps that could devastate their family.
This post is the wake-up call. Not to sell you anything—I don’t sell insurance—but to get you to actually open your policies and ask: do I have what I need? And this is just a landscape- my plan is to go more deeply into each of the plans in future posts.
The fix is simple but uncomfortable
At least once a year—ideally during open enrollment or when something changes (new job, new house, new kid)—actually look at what you have. Ask three questions: What does this cover? What doesn’t it cover? Is it enough?
Life insurance
Who needs it: anyone whose death would create a financial burden for someone else. If you have a spouse, kids, or anyone who depends on your income, you need life insurance.
How much: a common rule of thumb is 10-12x your annual income, but what really matters is what your family would need to maintain their life without you—mortgage, living expenses, childcare, education costs.
What type: for most people, term life insurance is the answer. You buy coverage for a set period (20-30 years), and if you die during that period, your beneficiaries get the payout. Straightforward and affordable.
Whole life insurance is more complicated. It combines insurance with a savings/investment component, which sounds appealing. But premiums are much higher, the “investment” often underperforms simpler alternatives after fees and commissions, and it’s easy to buy more than you need. Insurance agents love to sell whole life because many times the commissions are higher. For most people, you’re better off buying term and investing the difference yourself.
Whole life coverage can also let you down when you need it. A couple of years ago I was talking with a widow. She and her husband thought they were covered if he passed away. However, she discovered the whole life policy was worth far less than they’d both assumed. At the edge of retirement she thought the policy would bring her over the finish line, instead she had to keep working years longer than they’d planned.
Even if your kids are grown, you still need enough to cover final expenses. The average funeral runs $8,000 to $12,000. If you don’t have at least that much in coverage or savings earmarked for it, you’re leaving your family with a burden, not a gift.
What to check: Do you know whether your policy is term or whole? What’s the death benefit? When does it expire? If you can’t answer these, open the policy.
Disability insurance
Who needs it: anyone who earns income. Your ability to work is your most valuable asset, especially in your 40s and 50s.
This is the most underappreciated coverage. People assume Social Security disability will cover them—the average SSDI payment in 2026 is about $1,630 per month. Try living on that. They assume their employer’s disability insurance is enough without knowing what it actually pays or how it’s taxed.
What most people don’t realize: employer-provided disability is often 60% of your salary, but if your employer pays the premiums pre-tax, that means the benefits are taxable. So that 60% becomes more like 40-45% after taxes. Most employer plans also have caps—if you’re a higher earner, you may only be covered for a fraction of your income. And if you leave your job or go self-employed, you lose coverage entirely.
After my divorce, I took a job with a small consultancy. I didn’t think to ask about disability coverage. In the past I always worked for large firms and just “assumed” it was there. A friend pointed out the gap. Result - I panicked and bought a mediocre policy because I didn’t know better.
What to check: What percentage does your employer plan pay? Are benefits taxable? Is there a cap? Calculate what you’d actually receive after taxes—if it doesn’t cover essentials, consider supplemental coverage.
Homeowners and renters insurance
Who needs it: anyone who owns a home or rents and has belongings worth protecting.
The problem: people tend to be overinsured on some perils (like fire) and dangerously underinsured on others (like flooding or hurricane damage). Standard homeowners policies often exclude flood—you need a separate policy.
What to check: Does your policy cover replacement cost or actual cash value? (Replacement cost is better.) What’s excluded—flood, earthquake, wind? Is your coverage enough to actually rebuild at today’s construction costs?
A note on claims: think carefully before filing small claims. I know someone in a storm-prone state who filed several claims for damage just above the deductible. The company dropped them, and they had a hard time finding new coverage. Sometimes it’s better to pay out of pocket and save your insurance relationship for catastrophic stuff. But I’ve also regretted not going through insurance on small fender-benders when complications arose later. No perfect answer—just think it through.
Auto insurance
Who needs it: anyone who drives.
What most people miss: liability limits. The minimum required by your state is almost certainly not enough. If you cause an accident and damages exceed your liability coverage, you’re personally on the hook. That can mean losing savings, your home, or future earnings.
What to do: increase your liability limits. The cost difference between minimum coverage and $100K/$300K or higher is often surprisingly small.
Umbrella insurance
What it is: extra liability coverage that kicks in when your homeowners or auto limits are exhausted.
Who needs it: anyone with significant assets to protect. If you own a home, have retirement savings, or could have wages garnished in a lawsuit, you have something to lose.
The math: a $1 million umbrella policy typically costs $150-$350 per year, with each additional million adding about $75-$150. That’s remarkably cheap protection against a catastrophic lawsuit.
What to check: Do you have umbrella coverage at all? Does it require underlying liability limits you don’t currently carry? (Most policies require minimum auto and home liability limits before they’ll cover you.)
For people with real assets, this makes sense. For the typical family still building their foundation, it’s worth considering but not the first priority.
Long-term care insurance
What it is: coverage for extended care—nursing homes, assisted living, home health aides—when you can no longer take care of yourself.
The reality: someone turning 65 today has about a 70% chance of needing some form of long-term care. The nationwide average annual cost for a semi-private nursing home room now exceeds $110,000—and runs much higher in expensive states.
The challenge: long-term care insurance is expensive and has gotten more so. Premiums can increase after you buy. And if you wait too long, you may not qualify due to health issues.
Options include traditional long-term care insurance, hybrid policies combining life insurance with LTC benefits, self-insuring if you have enough assets, and Medicaid planning using irrevocable trusts (complicated and not a simple flip of a switch).
When to think about it: your 50s and early 60s, while you’re still healthy enough to qualify.
Lesson learned - my father had a good long-term care policy in the mid-90s, but switched to a cheaper one that only covered short-term rehabilitative care—90 days max. When my mother’s Parkinson’s diagnosis came, that policy was useless. She lived 20 years with the disease, not the 10 the doctors predicted. The costs of miscalculating were enormous.
We’ll go deeper on long-term care in a future post. For now: start thinking about it.
What most people get wrong
Assuming employer coverage is enough. It often isn’t—especially for disability and life. Know the details, do the math, supplement if needed.
Setting and forgetting. Your needs change when income changes, when you have kids, when you buy a house, when kids leave. Review annually.
Not understanding tax treatment. If your employer pays disability premiums pre-tax, benefits are taxed. That 60% replacement becomes a lot less.
Buying insurance as an investment. Insurance is for protection. If someone is selling you on “cash value” or “returns,” be skeptical. Buy insurance for insurance. Invest separately.
Not knowing when to file a claim. Small claims can raise rates or get you dropped. Sometimes better to pay out of pocket—but not always.
A note on business insurance
If you have a side business or home-based business, your homeowners policy probably doesn’t cover business activities. Your umbrella probably doesn’t either. Business liability is separate. Don’t assume you’re covered—check, and if you’re running a real business, get proper business insurance.
The bottom line
Insurance isn’t exciting. But it protects you from the things that could derail your financial life—death, disability, lawsuits, catastrophic loss.
The problem isn’t that you don’t have insurance. It’s that you probably haven’t looked closely enough to know if what you have is what you need.
Open your policies. Read them. Do the math. Close the gaps.
This is general guidance, not legal or financial advice. Rules and coverage vary by state and policy.
You might also like:
“The Estate Plan You Need Today” — life insurance proceeds and beneficiary designations
“Do you Actually Need a Trust” - Yes, you do!