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Insurance

Insurance protects the financial progress you have already made. Here is how to buy the right amount.

By Fountain Finances Editorial TeamUpdated

Explore insurance topics

Auto Insurance

The coverage you need behind the wheel and how to pay less for it.

Home Insurance

Protect your home, belongings and savings from major losses.

Renters Insurance

Low-cost protection for your belongings and liability as a tenant.

Why insurance belongs in your financial plan

Budgeting and saving build your financial foundation; insurance protects it. A single car accident, house fire, lawsuit or death in the family can undo years of careful saving. Insurance transfers the risk of those large, unpredictable losses to an insurer in exchange for a predictable premium.

The goal is not to insure against everything. It is to insure against losses you could not afford to absorb on your own — and to handle smaller costs with your emergency fund.

This hub covers auto insurance, home insurance, renters insurance and life insurance. For an overview of every major type, start with our guide to the types of insurance.

Key insurance terms

TermWhat it means
PremiumWhat you pay (monthly or yearly) to keep the policy active
DeductibleWhat you pay on a claim before coverage kicks in
Coverage limitThe maximum the policy will pay for a covered loss
Liability coveragePays for injury or damage you cause to others
Actual cash valueReplacement cost minus depreciation
Replacement costThe cost to replace an item with a new equivalent
ExclusionA situation or type of loss the policy does not cover

How to buy the right amount of coverage

  1. List what you need to protect: your income, your home or belongings, your car and your liability to others.
  2. Set limits that match your exposure. State minimum auto liability limits are often far lower than the cost of a serious accident.
  3. Choose a deductible you can pay from savings. A higher deductible lowers premiums but only makes sense if you have the cash.
  4. Compare at least three quotes with the same coverage limits and deductibles so the prices are truly comparable.
  5. Review every year and after major life events — a move, a marriage, a new child or a new home.

Checking an insurer

Before buying, confirm that the company and agent are licensed in your state. Your state insurance department’s website lets you check licenses and complaint records, and the National Association of Insurance Commissioners maintains a directory of state regulators at content.naic.org.

Insurance is one piece of the bigger picture. See how it fits alongside budgeting, saving and debt in our financial planning guide for beginners.

Frequently asked questions

What types of insurance does everyone need?

Most adults need health insurance, auto insurance if they drive (required in nearly every state), and either renters or homeowners insurance. Life insurance and disability insurance become important when others depend on your income.

How can I lower my insurance premiums?

Compare quotes from several insurers, raise your deductible if you have emergency savings to cover it, bundle policies with one company, ask about discounts and review your coverage every year.

What is a deductible?

The deductible is the amount you pay out of pocket on a claim before your insurance pays. A higher deductible usually means a lower premium, but you must be able to afford it if something happens.

Who regulates insurance companies?

Insurance is regulated mainly at the state level by each state’s insurance department, which licenses insurers and agents and handles consumer complaints.

This hub is part of our complete personal finance guide. Read our editorial standards.

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