What Insurance Do You Really Need—and What Can You Skip?

If you’ve ever felt overwhelmed staring at a list of insurance options—health, life, disability, pet, travel, ID theft, extended warranties—you’re not alone. Insurance is supposed to protect you, but it can also drain your budget if you buy every policy suggested to you.

This guide breaks down which types of insurance most people actually need, which are situational, and which are often safe to skip. The goal is to help you understand how each type works so you can make informed choices that fit your life and your money.

How to Think About Insurance: The Simple Framework

Before diving into specific policies, it helps to understand what insurance is really for.

Insurance makes the most sense when it protects you from:

• Losses that would be financially devastating, and
• Events that are unlikely but very expensive, and
• Risks you cannot easily cover with savings.

A useful way to decide whether insurance is worth it:

1. Ask what risk you’re insuring against.
2. Estimate how bad it would be if it happened.
3. Consider how likely it is.
4. Assess whether you could pay for it yourself.

When the impact is huge and your own savings couldn’t handle it, insurance is often worth exploring. When the impact is small or manageable, you may be better off skipping the policy and saving the money.

The Core Insurance Policies Most People Truly Need

These are the big four types of insurance that tend to matter most for many households:

1. Health insurance
2. Auto insurance (if you drive)
3. Homeowners or renters insurance
4. Life insurance (in specific situations)

1. Health Insurance: Essential Protection Against Medical Costs

For many people, health insurance is the most important coverage they will carry. Medical care can be very expensive, and even a relatively short hospital stay can create bills that are difficult to manage without coverage.

Health insurance typically helps with:

• Doctor visits and preventive care
• Hospitalization and emergency care
• Prescription medications
• Surgeries and specialized treatments, depending on the plan

Where you get it can vary:

• Through an employer
• Through a government program (depending on eligibility and country)
• Through individual plans purchased directly

The details—premiums, deductibles, co-pays, networks—can be confusing, but the key idea is simple: health insurance helps protect you from large medical bills that could easily overwhelm your finances.

For many people, being uninsured or underinsured for medical care creates ongoing financial stress. That’s why health coverage is widely viewed as a foundational type of insurance rather than something optional.

2. Auto Insurance: Often Legally Required and Financially Critical

If you own or regularly drive a car, auto insurance is usually non-negotiable for two reasons:

1. In many places, some form of auto liability coverage is legally required.
2. Car accidents can result in costly property damage and injury claims.

Common components of auto insurance include:

• Liability coverage: Pays for damage or injuries you cause to others. This is often the required minimum.
• Collision coverage: Helps cover damage to your car from an accident.
• Comprehensive coverage: Helps cover theft or non-collision damage (like vandalism or certain weather events).
• Uninsured/underinsured motorist coverage: Helps if you’re hit by someone with little or no insurance.
• Medical payments or personal injury protection: Helps cover medical costs for you and your passengers, depending on local rules.

Even if you want to save money, dropping necessary auto coverage can lead to serious problems if an accident occurs. While some optional elements can be adjusted, basic liability coverage is crucial wherever it’s required by law or needed to protect your finances.

3. Homeowners or Renters Insurance: Protecting Where You Live

Homeowners insurance

If you own a home, homeowners insurance usually does two big things:

• Helps cover damage to your home from covered events (like certain types of storms, fire, or theft, depending on the policy).
• Provides liability protection if someone is injured on your property and pursues you for damages.

Mortgage lenders typically require homeowners insurance because the home is also their collateral. Even without that requirement, the cost of rebuilding or repairing a home after a major event is often far beyond what most people can pay out of pocket.

Renters insurance

If you rent your home or apartment, renters insurance can be surprisingly useful and is often relatively inexpensive compared with other types of coverage. It generally:

• Helps cover your personal belongings (furniture, clothing, electronics) if they’re stolen or damaged by covered events.
• Provides liability coverage if someone is injured in your rental and sues for damages.
• Sometimes offers additional living expense coverage if you temporarily can’t live in your rental due to a covered event.

The building itself is usually insured by the landlord; renters insurance focuses on your stuff and your liability. For many people with even a modest amount of personal property, that’s a meaningful level of protection.

4. Life Insurance: Essential for Some, Optional for Others

Life insurance often raises the question: “Do I actually need this?”
The answer depends heavily on your situation.

Life insurance is mainly designed to help others who rely on your income or support if you pass away. It can help them:

• Pay everyday living expenses
• Cover education costs
• Pay off debts like a mortgage
• Manage major life transitions

You might want to consider life insurance more seriously if:

• You have dependents (children, a partner, or family members) who rely on your earnings.
• You share large financial obligations, like a mortgage, with a partner who could not easily manage it alone.
• You want to help cover final expenses so they don’t become a burden.

On the other hand, life insurance may be less critical if:

• You’re single with no dependents
• No one relies financially on your income
• You have enough assets to cover debts and end-of-life costs

There are different types of life insurance (such as term and permanent), each with its own structure, but the underlying question is always the same: Is anyone depending on your income or support long-term?

Insurance That Is Often Very Helpful but Overlooked

Some insurance products don’t get as much attention as health or auto insurance, but can still be highly valuable in the right circumstances.

Disability Insurance: Protecting Your Ability to Earn

For many people, their income is their most important financial asset. Disability insurance helps protect that income if a covered illness or injury prevents them from working.

There are two broad categories:

• Short-term disability: Helps replace a portion of your income for a shorter period (often weeks to months).
• Long-term disability: Helps replace a portion of your income for a longer period (often years, sometimes until a retirement age, depending on the policy).

Disability insurance can be particularly important if:

• You rely on your income to support yourself or your family.
• You don’t have extensive savings that could cover a long period without work.
• Your job is your primary financial safety net.

Some people get this coverage through employers, while others explore individual policies. Since the financial impact of being unable to work can be substantial, many experts view disability insurance as highly important, especially for working adults with ongoing obligations.

Umbrella Insurance: Extra Liability Protection for Peace of Mind

Umbrella insurance provides an additional layer of liability coverage above the limits of your auto, homeowners, or renters policies.

Why it exists:

• If you’re held responsible for a serious accident or injury and the damages exceed your regular policy limits, umbrella insurance can help cover the difference, up to its own limit.
• It can also provide coverage for some types of liability claims that might not be fully covered by standard policies, depending on the contract.

Umbrella coverage is often considered by people who:

• Have significant assets or savings they want to protect
• Own property, have a pool, or host frequent guests
• Simply prefer additional liability protection for peace of mind

It’s not a must-have for everyone, but for some households, it provides a relatively straightforward way to expand liability protection beyond standard policy limits.

Coverage That’s Sometimes Useful but Highly Situational

The next group includes types of insurance that can be wise in specific situations but aren’t universally necessary. Whether they make sense for you depends on your health, lifestyle, assets, debt, and financial comfort level.

1. Long-Term Care Insurance

Long-term care insurance is designed to help with the costs of ongoing assistance if you need help with daily activities (such as bathing or dressing), whether at home or in a facility.

This kind of care is often not fully covered by standard health insurance or basic government health programs, and the costs can be substantial over time.

Long-term care insurance is usually considered by people who:

• Want to plan for possible future care needs
• Prefer to have more options for where and how they receive care
• Are thinking about protecting assets they hope to pass on or use later

Whether it’s a good fit depends on:

• Your age and health
• Your savings and retirement plans
• Your comfort with the possibility of needing long-term support

2. Travel Insurance

Travel insurance can be helpful when you’re going on trips where:

• You’ve prepaid for nonrefundable flights, lodging, or tours
• You’re traveling internationally, where your regular health or auto coverage may not apply in the same way
• You’re concerned about unexpected cancellations, delays, or medical emergencies abroad

Common forms include:

• Trip cancellation/interruption coverage
• Emergency medical coverage while traveling
• Lost luggage or delay coverage

If your trip is inexpensive or flexible, you might not need travel insurance. If you’re taking a major, nonrefundable, or international trip, it may be worth considering.

3. Pet Insurance

For people with pets, pet insurance can help manage the cost of veterinary care, especially for accidents or illnesses.

It typically focuses on:

• Accidents and injuries
• Certain illnesses
• Sometimes preventive care, depending on the plan

Pet insurance is often considered by people who:

• See their pets as family members
• Want some financial buffer against unexpected vet bills
• Prefer predictable monthly costs over occasional large expenses

If veterinary bills would be difficult to handle unexpectedly, pet insurance can be a way to spread that risk. If you have substantial savings and are comfortable paying out of pocket, you might view it differently.

4. Vision and Dental Insurance

Vision and dental coverage sometimes appear as add-ons to health insurance or as separate policies.

• Vision insurance often helps with eye exams, lenses, and frames.
• Dental insurance often helps with checkups, cleanings, and some treatments, like fillings or more complex dental procedures, depending on the plan.

These policies can be useful if:

• You anticipate regular eye care or dental work
• You want to encourage yourself to maintain preventive care
• You prefer predictable premiums over occasional larger invoices

Some people prefer to pay for routine eye or dental care directly, while others appreciate the structure of insurance or benefit from employer-subsidized options.

5. Identity Theft and Credit Protection

Identity theft protection services and insurance aim to help with issues related to stolen personal information, such as:

• Monitoring for suspicious activity
• Assisting with restoring accounts or records
• Covering some administrative costs of recovery, depending on the policy

The need for this type of coverage is debated:

• Some people value the guidance and monitoring tools provided.
• Others feel comfortable using free tools, good security practices, and their existing bank protections.

If you’re concerned about the time and complexity of recovering from identity theft, you may find coverage or services useful. If you’re comfortable managing security and monitoring on your own, you may view it as less essential.

Policies Many People Can Often Skip (or Approach Very Cautiously)

Certain insurance products are frequently marketed but not always necessary. They may duplicate other coverage you already have or protect against relatively small risks.

This doesn’t mean they are always a bad idea, but they’re often less critical than core policies.

1. Extended Warranties on Electronics and Appliances

Extended warranties are a common add-on when buying electronics, appliances, or gadgets. They typically:

• Extend the manufacturer’s warranty period
• Cover certain repairs or replacements beyond the standard time frame

Reasons people often skip them:

• Many products don’t fail within the extended period.
• Manufacturer warranties already cover a portion of early defects.
• Credit cards sometimes offer their own extended warranty benefits.
• The cost of the warranty can be similar to or greater than the likely repair or replacement.

Some individuals prefer to self-insure for small items—setting money aside in savings instead of paying for multiple warranties.

2. Credit Card, Loan, or Mortgage “Protection” Insurance

These products promise to help cover your payments if you experience certain hardships, such as disability, job loss, or death.

Considerations:

• Coverage terms can be narrow and complex.
• You may already have life or disability insurance that offers broader protection.
• The cost relative to the benefit is sometimes viewed as high.

For many people, a good life or disability insurance policy is more flexible and comprehensive than debt-specific protection. Still, some individuals find these products reassuring, especially when they prefer payment protection that is tied directly to a specific account.

3. Flight or Event Insurance for Low-Cost Purchases

You may be offered insurance when buying low-cost flights or event tickets, often focused on cancellations or delays.

This type of coverage can be less beneficial when:

• The total cost is relatively small
• The terms for what qualifies as a valid claim are limited
• The event or ticket is easily rescheduled or refunded

If the amount at risk is not significant for you, paying extra to insure each small purchase may not be the best use of your budget.

4. Gadget Insurance for Every Device

Some providers offer separate insurance for smartphones, laptops, tablets, or other electronics.

These policies may:

• Cover accidental damage, loss, or theft, depending on terms
• Require deductibles and limits similar to other insurance products

In some situations, this coverage can be useful, especially if:

• You rely heavily on a single expensive device
• Replacement would create a financial burden

However, many people already have:

• Homeowners or renters insurance that may provide some coverage for theft or damage (subject to deductibles and limits)
• Savings that could cover a replacement device if necessary

Because of overlapping coverage and costs, gadget insurance is something people often evaluate closely rather than accept by default.

Quick Reference: Which Insurance Types Are Often Essential vs. Optional?

Here’s a simplified overview to help you scan the landscape:

7 Practical Tips for Building a Smart Insurance Mix

To make all of this more actionable, here are some practical steps you can use when deciding which policies to keep, add, or drop.

1. Start With the “Disaster Test”

Ask of each major risk:

• 🧩 Can this event financially change my life for the worse?
• 💸 Could I realistically pay for it with my savings?
• 📉 Would I be forced into debt if it happened?

If the answer is yes to the first and no to the others, that’s a strong sign insurance may be worth exploring. This is why health, auto liability, homeowners/renters, and disability coverage so often come out on top.

2. Avoid Insuring Against Small, Manageable Losses

Insurance works best for big, rare events, not everyday mishaps.

If a loss would be annoying but financially manageable, consider:

• Skipping the insurance
• Setting aside money in an emergency or “self-insurance” fund instead

This mindset can help you say no to coverage for minor items, low-cost tickets, or multiple extended warranties.

3. Review What Coverage You Already Have

Before buying new insurance, take inventory:

• Health benefits through work or the government
• Existing life or disability policies
• Coverage included with credit cards
• Homeowners/renters policies that may already include limited coverage for belongings, theft, or liability
• Built-in manufacturer warranties on products and electronics

This helps you avoid paying twice for similar protection.

4. Focus on Liability Coverage Where It Matters

Liability is about harm you might cause to others. Claims can be significant when:

• You cause an auto accident
• Someone is injured on your property
• An incident leads to legal action

Adequate liability protection under auto and home/renters policies, and possibly an umbrella policy, can help guard against large, unpredictable claims that would otherwise affect your finances.

5. Match Insurance to Life Stages and Responsibilities

Your insurance needs evolve over time. For example:

• Young adult, no dependents: Focus on health, auto, renters, and potentially disability. Life insurance may be less critical.
• Family with children or dependents: Health, auto, home, disability, and life insurance often play a larger role.
• Pre-retirement or retired: Long-term care coverage, revisiting life insurance needs, and reviewing health coverage options may become more relevant.

Check in on your coverage regularly when you experience major life events, such as marriage, having children, buying a home, or changing jobs.

6. Read the Fine Print—Not Just the Headline

Insurance can sound reassuring in a short description, but the details matter:

• What exactly is covered?
• What is excluded?
• What are the limits and deductibles?
• Under what conditions does coverage apply?

Understanding these elements helps you avoid surprises and ensures you’re paying for real value, not vague promises.

7. Build Savings Alongside Insurance

Insurance and savings work best together:

• Insurance protects you from major, unexpected financial shocks.
• Savings help cover deductibles, smaller losses, and everyday life expenses.

Over time, as your savings grow, you may feel more comfortable raising deductibles or skipping coverage for smaller risks, which can help reduce premium costs.

Key Takeaways at a Glance

Here’s a compact summary you can refer back to when making decisions:

• ✅ Prioritize “big risk” insurance: health, auto (if you drive), homeowners or renters, and often disability and life insurance, depending on your situation.
• ✅ Use situational policies thoughtfully: long-term care, travel, pet, vision/dental, identity theft, and umbrella coverage can make sense when aligned with your needs.
• ❌ Be cautious with small-risk insurance: extended warranties, gadget coverage, low-cost trip/event policies, and some credit protection products often protect against manageable losses.
• 🧠 Always ask: What risk am I really insuring? How likely is it, how severe is it, and can I cover it myself?
• 💼 Review coverage when life changes: new job, marriage, children, home purchase, or retirement can all shift what you need.
• 💰 Combine insurance with an emergency fund for a more resilient, flexible financial safety net.

Understanding which types of insurance you actually need—and which you can choose to skip—turns a confusing topic into a manageable part of your financial life. When you focus on protecting against the truly significant risks and avoid over-insuring the small ones, you free up both money and mental energy for the goals that matter most to you.