Yes, we know. Buying insurance sure doesn’t seem simple. Whether you’re trying to insure your life, your car or your home, it doesn’t take long before you’re drowning in sub-clauses and riders. But here’s a secret your insurance company doesn’t want you to know: beneath all of that dense jargon, there are three straightforward rules that you can apply to almost any insurance situation:

  • Only buy insurance to protect you from unlikely events.
  • Only buy enough insurance to maintain your existing standard of living.
  • You don’t need insurance for events that won’t severely strain your finances.

Easy right? Now let’s put those rules into practice. Do you need to insure your kids? No, because if something happened to them, you’d be devastated, but it wouldn’t strain your finances. Here’s another: Do you need disability insurance for your family’s primary breadwinner? Yes, because although becoming disabled is an unlikely event, it would have severe financial consequences for the whole family. Here’s a tougher one: Should you buy life insurance for yourself if you’re 89? No, because sadly, it’s very likely that you will die within the next 10 years, so insurance would be prohibitively expensive.

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