Insurance

Insurance exists to protect against the financial consequences of low-probability, high-cost events. The goal isn't to cover every possible situation, but to ensure that no single event can derail your financial life entirely while not spending too much on a month-to-month basis

The core tradeoff in every insurance decision is the same: you pay a set cost now in exchange for protection against an unknown, potentially devastating cost later. It is preferably to pay $100 monthly instead of leaving a 10% chance of a $50,000 bill. Getting this tradeoff right means carrying enough coverage where the downside risk is catastrophic, while avoiding over-insuring against smaller risks you could manage.

The six types of insurance covered in this section, health, life, disability, auto, homeowners, and renters, represent the core of what most people need to have in place.