A young colleague recently mentioned that she had to pay her life insurance premium. She's single, in her 30s with no kids, so I couldn't help but ask her why she needed life insurance. The answer was simply, "well, I've always had it."

This got me thinking about all the potentially confusing choices people make every day regarding the types of insurance they purchase as well as the kinds they don't buy.

Similar to other parts of our financial lives, the world of insurance has become increasingly complicated — if for no other reason than the vast number of products from which to choose. Because insurance is a key part of every well-thought-out financial plan, it's important to take the time to sort out what you really need. Not everyone requires the same coverage; to a certain extent it depends on your individual situation, both personal and financial. However, I suggest you review these important areas to make certain you're adequately covered.

MUST-HAVES

— Health insurance: I rarely deal in absolutes, but I make an exception with health insurance. Everyone must have it. Alarmingly, the U.S. Census Bureau reports that close to 46 million Americans are uninsured. According to a 2001 Harvard University study, medical bills were the No. 1 cause of personal bankruptcy.

If you don't have sufficient medical coverage through your employer or another group, you must consider your options. Even the young and healthy can't be complacent. With soaring health care costs, a serious injury or surgery that might require a hospital stay can set you back thousands of dollars. Parents take note: If you have an uninsured 20- or 30-something, what would it cost you to provide them with topnotch medical care in case of a grave illness or accident?

I suggest at least a low-cost, high-deductible policy to cover major expenses. You can also get creative about finding health insurance coverage. Are you part of a professional, educational or religious organization? You may be able to purchase insurance through that group at a lower cost. Even enrolling in a class or two at a community college might qualify you for student health insurance.

— Car insurance: If you drive a car, you have a responsibility — to yourself and to others — to carry some type of insurance. Most states require you to possess at least basic liability insurance to cover damage you may do to others, including both bodily injury and property damage. Liability insurance also pays for potential legal bills.

You can choose to expand your coverage to cover a variety of other possible costs, such as damage to your car in case of a collision, vandalism or fire, or if your car is stolen. But liability insurance is the must-have here to protect yourself from a financial crisis in the event of an accident.

INSURANCE WELL WORTH CONSIDERING

— Disability insurance: Our earning power is a valuable asset, which is worth protecting. However, disability insurance is one of the most often ignored areas. A 2007 survey by the Council for Disability Awareness revealed that most American workers grossly underestimate their chances of becoming disabled and the financial consequences. At the same time, recent studies estimate that 3 out of 10 workers between the ages of 25 and 65 will experience an accident or illness that keeps them out of work for three months or longer; that's why disability insurance is so important.

Many employers have some type of disability insurance, often covering about 60 percent of your salary. A few states offer State Disability Insurance (SDI) or "short-term disability" coverage. The Social Security Administration also presents limited disability coverage. Look into your current coverage: If you can't survive a work disruption, a private disability policy might make sense.

— Life insurance: As I said to my colleague, everyone doesn't require life insurance. The important thing is to make sure you have it if needed; obtain the right type to suit your needs.

If you have kids, a nonworking spouse or other loved ones who are dependent on your earnings, a term life policy might be the best way to replace your income in the event of your death. It also makes sense if you know there's a big expense ahead, say college tuition, that you want to make sure is covered.

Term life insurance tends to be extremely inexpensive; however, before you go this route think about whether you would be better served with a permanent policy. By definition, a term policy only lasts for a fixed number of years. So if you know your estate will be hit with a large tax bill, or if you have a dependent that will require funds indefinitely, a whole life policy could be the best choice. Premiums may initially be higher, but when you prorate them over your life span, you may find you actually paid less.

— Homeowners and renters insurance: If you own your home, you want to make sure you have adequate coverage to protect both your dwelling and your possessions. Depending on where you live, you may want to add on earthquake or hurricane insurance for good measure.

If you rent, look into renters insurance. Your landlord's policy will only cover damage to the dwelling, not to your possessions. A renter's policy usually insures events such as fire, theft and vandalism, and may even protect you from damage due to circumstances like faulty wiring, water or weather. Think of what it would cost to replace everything you own. It could be worth a few extra dollars to protect yourself.

— Umbrella liability policy: For extra protection, you might also consider an umbrella policy. This provides coverage above and beyond your car or homeowner's insurance in the event that you might be sued for an injury caused by you or your property. What's the likelihood? Think of a neighbor taking a nasty fall because of uneven pavement on your front walkway, or a car accident for which you're responsible.

Fortunately, umbrella policies are pretty reasonable. For instance, you can often receive up to a million dollars in coverage for a couple hundred dollars a year. If you have your car and homeowner's insurance with the same company, ask them about an umbrella policy. You may be surprised how easy and affordable this extra peace of mind can be.

— Long-term care insurance: The U.S. Department of Health and Human Services estimates that at least 70 percent of people over 65 will require some type of long-term care services at some point. Long-term care insurance isn't cheap, plus premiums and benefits vary widely. But whether you're concerned for yourself or aging family members, you should think about how the cost of care versus insurance would affect your overall financial health.

INSURANCE YOU CAN GENERALLY AVOID

Certain insurance types are usually unnecessary and can be a waste of money. For instance, if your mortgage is below 80 percent, you probably don't need private mortgage insurance. And the list goes on and on. To my mind, it's best to think carefully before purchasing any of the following:

— Life insurance for kids: Remember, life insurance is for those who have dependents. You're not financially dependent on your kids, right?

— Car rental insurance: This is usually covered by your own auto insurance and by some credit cards.

— Pet insurance: Premiums can often be larger than average pet care costs.

— Flight insurance: If you have adequate health and life insurance, that's probably sufficient. What are the odds of being in a plane crash?

— Wedding insurance, cancer insurance, mortgage life insurance ... all should be taken with a large grain of salt.

A FEW WORDS OF CAUTION

Buying insurance can be tricky. Shop carefully, ask questions and read the fine print. This is about your present and future financial well-being. Take time now to make sure you have what you need; don't waste money on what isn't important.

Carrie Schwab Pomerantz is Chief Strategist, Consumer Education, Charles Schwab & Co., Inc., Member SIPC. You can e-mail Carrie at askcarrie@schwab.com. To find out more about Carrie Schwab Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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