Lesson P102.11 · Personal Finance 102: Credit, Debt and Setbacks
Insurance basics: car, renters, disability and life
4-minute read · Figures checked October 2026
Photo: Matthias Zomer / Pexels, Pexels License
The short answer
Insurance is for losses you couldn't pay yourself. For most working people, that means auto liability limits above the state minimum, renters insurance if you rent, disability coverage if you live on your paycheck, and term life if anyone depends on you. If you drive for work or tow a trailer, check whether your personal auto policy covers it. It may not.
Insure the big losses, keep the small ones
A busted windshield or a vet bill is a budget problem. A lawsuit after a crash, a house fire or six months off work is a different kind of problem, and that's what insurance is for. Small losses are what your emergency fund is for.
That's how to think about deductibles. A higher deductible lowers your premium, but only pick one your emergency fund can cover the day you need it.
| Coverage | What it pays for | Who usually needs it |
|---|---|---|
| Auto liability | Injuries and damage you cause to other people | Anyone who drives |
| Renters | Your belongings, and your liability at home | Anyone who rents |
| Disability | Part of your pay if illness or injury keeps you from working | Anyone who lives on a paycheck, especially in physical work |
| Term life | A lump sum to your family if you die during the term | Anyone others depend on |
| Umbrella | Extra liability above your auto and renters or home limits | People with savings or property a lawsuit could reach |
Health insurance has its own lesson (P102.9).
Your truck: liability limits and work driving
Liability is the part of your auto policy that pays when you hurt someone or damage their property. Limits are often written as three numbers, like 100/300/100 (example): $100,000 for each person hurt, $300,000 for everyone hurt in one crash, and $100,000 for property. Your state's minimum is the legal floor, not a safe amount. If a judgment is bigger than your limits, you can owe the rest. Carry limits that cover what you'd lose in a lawsuit.
Then there's work driving. A personal auto policy may not cover driving for business: hauling equipment, towing a trailer to a job, or running jobs for your own side business. Ask your agent in writing, and get the answer in writing.
Example: Tomas tows a trailer with a sealcoat skid unit to paid weekend jobs in his own truck. His policy is a personal one. He emails his agent: am I covered when I tow this trailer to a paid job? The answer decides whether he needs a business policy before next weekend.
Disability, life and renters
Disability coverage matters most in physical work. Workers' comp covers employees hurt on the job, under state rules. It doesn't cover a weekend softball injury, and if you're paid on a 1099, you may not have it at all. Disability insurance through work or on your own replaces part of your pay when you can't work.
For life insurance, most money teachers agree: term, not whole life, for most families. Dave Ramsey's guideline is a 10–20-year term policy worth about 10–12 times your yearly income for anyone others depend on.
Example: Lena earns $45,000 a year and has two kids. Ten to 12 times her income is $450,000 to $540,000 of term life. Made-up numbers.
Renters insurance covers your belongings and your liability at home. If you keep work tools in your apartment, ask whether they're covered.
Shop your policies every year or two. An independent agent can quote several companies at once.
Your Move
Do this week
- Pull up your auto policy's declarations page.
- Write down your liability limits.
- Ask your agent, in writing: am I covered when I drive for work, tow a trailer or carry equipment? What isn't covered?
- If anyone depends on your income, write down how much term life and disability coverage you have, through work or on your own.
Log it: Checked my auto limits and work driving.
Common questions
Is the state minimum auto insurance enough?
It's the least your state lets you carry. A serious crash can cost far more, and if a judgment is bigger than your limits, you can owe the rest.
Does my personal auto policy cover my side jobs?
Maybe not. Driving for business, towing a trailer or hauling equipment may not be covered. Ask your agent in writing.
Do I need life insurance if no one depends on me?
If no one depends on your income, you may not need it yet. Revisit it when that changes: a spouse, a baby, a mortgage.
Watch out for
- Letting a policy lapse in the slow season to save money. A lapse can leave you driving uninsured.
- A deductible bigger than your emergency fund.
- Cash-value life insurance pitched as an investment. Most money teachers agree term fits most families.
Free help
- National Association of Insurance Commissioners: Insurance Departments, to find your state's insurance department
- HealthCare.gov, for health coverage dates (P102.9)
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- Ramsey Solutions: Dave Ramsey's Teaching on Life Insurance
- National Association of Insurance Commissioners: Insurance Departments
- U.S. Department of Labor: Workers' Compensation
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