Essential Insurance You Must Have (and One You Can Skip)

Rowan Ashford

Published: April 4, 2026 7:56 PM ET

Understanding the essential insurance policies you need can significantly impact your financial security. Despite high premiums and a common perception of being under-insured, carrying certain types of insurance is crucial for adequate protection.

Essential Insurance You Must Have

In Australia, insurance spending averages between $1500 to $2000 per person, contributing to an overall expenditure of around $120 billion annually. Nevertheless, many Australians are unclear about their policies, and one in five admits to purchasing insurance without fully understanding it.

Types of Essential Insurance

Personal Insurance: This is vital for financial protection against severe life events. Key components include:

Life Insurance
Income Protection
Total and Permanent Disability (TPD) Insurance
Trauma or Critical Illness Insurance

Income Protection: This is often deemed the most crucial form of insurance. It typically covers 70-90% of your income and provides payments in installments.
Life Insurance: This covers debts and supports loved ones financially in case of death, ensuring their well-being during tough times.

Secondary Insurance Options

Private health, pet, car, and home insurance fall under this category. While necessary in some cases, these insurances might not always be essential. Key considerations include:

Private Health Insurance: Essential if you can afford it, but may be less critical in tight budget situations.
Home and Contents Insurance: Often required by banks for mortgage holders, making it generally non-negotiable.

Insurance to Skip

Certain insurance types are often considered unnecessary expenses. These include:

Phone Insurance: The cost of insurance may exceed the replacement cost of the device.
Funeral Insurance: Average payouts of $8500 typically come with premium costs ranging from $20,000 to $30,000, making savings a smarter option.

Finding the Right Balance

Insurance should be approached thoughtfully, balancing the likelihood of an event occurring and the financial implications of that event. If circumstances change, having the appropriate coverage ensures consistent stability, particularly in uncertain times.

In conclusion, while it’s easy to overlook insurance, it’s vital to focus on necessary policies that protect against severe impact. Understanding your options enables smarter decisions that provide peace of mind.