Insurance & Risk Management

The amount depends on your income, debts, number of dependents, and how long they would need support. A common starting framework is 10-15x your annual income, but this oversimplifies. A better approach accounts for specific obligations: mortgage payoff, education funding, income replacement for a defined period, and final expenses, minus existing assets and other insurance. Term life insurance covers most people's needs at a fraction of permanent insurance costs.

Your ability to earn income is typically your most valuable financial asset, especially early in your career. Disability insurance replaces a portion of your income if you cannot work due to illness or injury. Group policies through employers often cover 60% of base salary, but may exclude bonuses and have taxable benefits. Individual policies offer more comprehensive coverage and portability. The probability of a working-age adult experiencing a disability lasting 90+ days is higher than most people expect.

Beyond monthly premiums, evaluate the deductible, out-of-pocket maximum, network coverage, and prescription formulary. High-deductible plans paired with HSAs can be advantageous for healthy individuals who want tax-advantaged savings. If you have chronic conditions or expect significant medical expenses, a lower-deductible plan with higher premiums may cost less overall. ACA marketplace plans should be compared against employer coverage and COBRA if you are between jobs.

Umbrella insurance provides liability coverage beyond what your auto and homeowners policies include, typically starting at $1 million. It protects personal assets if you are sued for damages exceeding your base policy limits. The cost is relatively low, often $200-400 per year for $1 million in coverage. Umbrella insurance becomes more important as your net worth grows, since higher assets mean more exposure in a lawsuit.