If you finance a new car or other large purchase, you'll probably be offered credit life insurance. Do you need it? Probably not. See Chapter 13 for information about credit life insurance. What about contact lens insurance? Air travel insurance? Rental car insurance? No, no, and probably not. Your personal auto insurance usually covers you for rental cars, but call your insurance agent to find out for sure.

Trip insurance may be worthwhile if you're going out of the country and you've prepaid large amounts, but it doesn't come cheap. Expect to pay between 3 and 7 percent of your costs in premium. For example, if your trip costs $6,000, you'll pay between $180 and $420 for trip insurance. Be sure to read the fine print very carefully. You may be surprised at what isn't covered.

Umbrella Insurance

Umbrella insurance limits your liability against a wide variety of events.

Think of it as extra coverage on your homeowner's and automobile policies. Umbrella insurance covers behavior that may not be covered under those policies, and it can pay for damages above and beyond the dollar limits on those policies.

For example, you may cause an auto accident and be liable for $900,000 of medical expenses. If your auto insurance policy only covers $300,000, you're on the hook for the next $600,000. If you can't write a check for $600,000, the person you owe can go after your home and other personal assets. Of course, the legal fees involved would be significant as well.

Umbrella insurance may protect you in the scenario above. If you have a $1,000,000 umbrella policy, you would most likely be covered. Your auto insurance would pay the first $300,000 of damages, and the umbrella policy would pay the next $600,000. In addition, many umbrella policies will pay for your legal defense.

Umbrella insurance (or excess liability insurance) is extremely inexpensive. For $300 a year or less you can usually purchase $1,000,000 of umbrella coverage. However, you have to maintain minimum required coverage limits on your homeowner's and auto insurance policies. To get details on pricing, contact the company that you currently have insurance through.

Group or Individual?

If your employer offers insurance benefits, you should take advantage of the low-cost coverage available in group insurance plans. However, remember that your insurance coverage is tied to your job. If you change jobs or quit working, your insurance coverage may go away.

Most people should investigate individual life and disability policies. If your employer offers these benefits, you may find that it's not enough to meet your needs. While you can often purchase more through your job, you should compare the costs with an individual policy. An individual policy can stay with you for multiple jobs — and cover you when you're self-employed.