Insurance for the young and single

Auto insurance. Car insurance consists of three main components: collision, comprehensive and liability.

Liability covers the damage you do to other people and their property. Collision coverage pays for the damage to your car in an accident (although if the accident was another driver's fault, your company might try to get the other insurance company to pay). Comprehensive covers the other bad things that can happen to your car, such as theft or fire.

You need liability coverage, no matter what, and probably more than the minimum levels your state requires. See below for more details.

You may not need collision and comprehensive insurance if your car is more than five years old.

That's because, even if your car were stolen or totaled, the insurance company likely would give you so little money that it's not worth the premiums. One rule of thumb: If the total cost of your annual car-insurance premiums is more than 10% of the value of the car, think about dropping comprehensive and collision coverage.

You can also save money on insurance by boosting your deductible -- the higher, the better. Just make sure you have enough money in savings to cover any damages below the deductible amount. For help, see "Shopping for auto insurance."

Liability coverage. This kind of coverage covers you if you get sued. It's a component of your auto, homeowners or renters policies. The key with liability coverage is to make sure you have enough.

Bare-bones liability coverage might provide you with $30,000, or even less, to defend yourself or pay any judgments. Most people would be smarter to get at least $100,000 of coverage.

The more you have, the more protection you need: Insurance experts recommend having liability coverage at least equal to your net worth, and even more if you have a high income or work in a lawsuit-prone field.

Video: Everyone needs an emergency fund

Insurance you probably don't need

Life insurance. Insurance agents love to sell life policies to anyone who'll buy them, and they'll outline the dire consequences if you fail to buy now. If no one depends on your income to survive, however, skip the sales pitch and put the extra money into your retirement fund.

Credit insurance. This comes in various forms and is usually pitched by your credit card company in those annoying little fliers tucked in with your bill. They might offer to make your minimum payments if you're disabled or unemployed, for example. Usually, the coverage is overpriced. The best credit insurance is simple good sense: Don't carry big credit card balances, make sure you have an emergency fund in case you lose your job, and get disability coverage if you can.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated Sept. 15, 2009

< previous |  1 | 2 |