Dave Ramsey's Baby Steps: When Should You Buy Insurance?

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group

A young couple in Boise just knocked out their last credit card and felt unstoppable, so they dropped their disability coverage to throw an extra 40 dollars a month at savings. Three months later one of them blew out a knee and missed nine weeks of work, and that 40 dollars they saved cost them thousands. This post walks through where insurance fits as you work Dave Ramsey's 7 Baby Steps, so you protect your progress instead of accidentally undoing it.

Here Is the Short Answer

Insurance is not a Baby Step. It is the guardrail that protects every step. You put the essential coverages in place right away, auto, home or renters, health, term life, and long-term disability, and you never pause them to pay off debt faster. As you climb the steps, you adjust the dials. Once your full emergency fund is in place at Baby Step 3, you raise your deductibles to lower your premiums. As your net worth grows through Baby Steps 4 through 6, you add an umbrella policy. Around age 60, you look at long-term care. The goal at the end of the road is to be so well protected and so wealthy that you are mostly self-insured.

Why Dave Ramsey Says Insurance Comes First, Not Last

The Baby Steps are a road map out of debt and into real wealth. Roads have guardrails for a reason, because life throws curves. The point Ramsey drives home, and one we believe in completely, is that the right coverage is not about living scared. It is about protecting the freedom you are working so hard to build.

Here is the trap. When money is tight, insurance looks like an easy line item to cut. It is not. Skipping essential coverage is not saving money. It is taking a risk you cannot afford, where one bad day can erase years of progress. A house fire, a serious car wreck, a disability, or a lawsuit can all set you back to zero or worse.

This is also why insurance is not its own step. You do not wait until Baby Step 5 to protect your family. You protect your income and your assets from day one, because your income is the single most powerful wealth-building tool you have.

The Coverage You Buy Right Away, No Matter Your Step

Some coverage is non-negotiable from the start. These protect you whether you are deep in Baby Step 2 or coasting through Baby Step 6.

Auto insurance. Required by law in nearly every state, but the real reason to carry strong limits is liability. A serious at-fault crash can generate medical and legal bills well into six figures.

Home or renters insurance. If you own, your lender requires it. If you rent, your landlord's policy covers the building, not your belongings or your liability. Renters coverage is inexpensive and worth every dollar.

Health insurance. A single hospital stay can run tens of thousands of dollars. This is the kind of bill that wipes out an emergency fund in an afternoon.

Term life insurance, if anyone depends on your income. Ramsey is direct on this one. If you have a life insurance need, it is not something you schedule for later. It is a necessity you put in place as soon as possible.

Long-term disability insurance. You are far more likely to miss months of work from injury or illness than to die young. Disability coverage typically replaces about 60 to 70 percent of your income while you cannot work.

Notice that term life and disability are tied to your situation, not to a number on the Baby Steps chart. If people count on your paycheck, you need them now.

Insurance and the Baby Steps, Step by Step

Here is how the coverage decisions line up with each stage of the plan.

Baby Step 2: The Most Common Mistake

This is where people get into trouble. The debt snowball builds momentum, and that momentum is addictive. The temptation is to cut anything that frees up cash, including insurance.

Do not cut essential coverage. Do cut the junk. Mortgage life insurance, credit card payment insurance, accidental death policies, and cash-value life insurance are the kinds of products Ramsey teaches people to drop. They are usually overpriced, duplicate protection you already have, or both. Cancel those, and send the savings to the snowball. That is how you speed up debt payoff without leaving yourself exposed.

Baby Step 3: When You Finally Raise Your Deductibles

This is one of the clearest payoffs in the whole plan. A deductible is what you pay before insurance kicks in. A higher deductible means a lower premium.

The catch is that you need cash on hand to cover that deductible if something happens. With only 1,000 dollars in Baby Step 1, a 2,500 dollar deductible is a problem. But once you have 3 to 6 months of expenses saved at Baby Step 3, you can comfortably raise deductibles on your home and auto and pocket the premium savings every month. Imagine two families on the same street with identical homes. The one with the fully funded emergency fund can run a 2,500 dollar deductible and save real money each year. The one still living paycheck to paycheck cannot.

Baby Steps 4 to 6: When to Add an Umbrella Policy

An umbrella policy sits on top of your home and auto liability and pays out after those limits are exhausted. It is one of the cheapest forms of protection per dollar of coverage you can buy.

Ramsey points to roughly 500,000 dollars in net worth as the trigger to add one. We would add a practical note. Umbrella coverage is also worth a look earlier if you carry higher liability exposure, such as a teen driver, a swimming pool, a trampoline, or a rental property. The more you have built, the more you have to lose in a lawsuit, and the more an umbrella earns its keep.

Around Age 60: Long-Term Care

Long-term care covers nursing-home and in-home care costs, which are some of the largest bills retirees ever face. Ramsey recommends putting this protection in place around age 60, before health issues make it harder or more expensive to qualify. The point is to keep a multi-year care bill from devastating the retirement you spent decades building.

A Word on Small Claims as You Build Wealth

Here is a habit that fits the Baby Steps perfectly. As your emergency fund grows and your deductibles rise, you stop filing small claims and start handling minor costs yourself. Filing for a 600 dollar repair when you have a 2,500 dollar deductible makes no sense, and a pattern of small claims can push your premiums up at renewal.

Roadside assistance is a good example. A tow or a jump-start is exactly the kind of small event you do not want on your insurance record. That is why we recommend a standalone roadside plan like AutoHero Roadside. Service calls run through AutoHero do not generate insurance claims and do not show up on your CLUE report, which keeps your record clean and your rates stable as you move up the steps.

What This Looks Like With a RamseyTrusted Independent Agent

Ramsey only points people to pros who work for the client, not for the insurance company. That is the heart of the independent agency model, and it is how Trailstone is built. We are not captive to one carrier. We shop more than 40 A-rated companies to match you with the right coverage at the right price.

That matters at every Baby Step. In Baby Step 2, we help you find savings without gutting your protection. At Baby Step 3, we reprice your policies with higher deductibles. As your net worth grows, we layer in the umbrella coverage that fits. The plan changes as you change, and an independent agent can move with you instead of selling you one company's products at every stage.

Frequently Asked Questions

Is insurance one of the Baby Steps?

No. Insurance is not a numbered step. It is the protection that runs underneath all seven steps. You put the essential coverages in place right away and adjust them as you move through the plan.

Should I cancel insurance to pay off debt faster in Baby Step 2?

Not your essential coverage. Cancel junk and duplicate policies like mortgage life, credit card insurance, accidental death, and cash-value life, then redirect that money to your debt snowball. Keep your auto, home, health, term life, and disability in force.

When should I buy term life insurance on the Baby Steps?

As soon as anyone depends on your income, regardless of which step you are on. Term life is not something to delay. Ramsey recommends a level term policy worth 10 to 12 times your annual income, with a term of 15 to 20 years.

When can I raise my deductibles?

Once you reach Baby Step 3 and have 3 to 6 months of expenses saved. At that point your emergency fund can cover a higher deductible, so you can lower your premiums safely.

When should I add an umbrella policy?

Ramsey points to about 500,000 dollars in net worth as the trigger, which usually lands in Baby Steps 4 through 6. Consider it earlier if you have higher liability exposure, such as a teen driver, a pool, or a rental property.

When should I look at long-term care insurance?

Around age 60. Putting it in place before health problems arise keeps you eligible and keeps the cost reasonable, so a long care stay does not drain your retirement savings.

What insurance does Dave Ramsey say to avoid?

He teaches people to skip cash-value or whole life insurance, mortgage life insurance, credit card payment insurance, and accidental death policies. These tend to be overpriced or duplicate coverage you already have.

Does using a RamseyTrusted independent agent cost more?

No. An independent agent shops multiple carriers to find your best price, and there is no extra charge to you for that service. The value is access to many companies and an advocate who works for you, not for one insurer.

Your Baby Steps Insurance Checklist

• Lock in the essentials now. Auto, home or renters, and health coverage stay in force at every step.
• Put term life and disability in place if anyone depends on your income. These are needs, not steps to schedule for later.
• Cancel junk and duplicate policies. Drop mortgage life, credit card insurance, accidental death, and cash-value life, and send the savings to your debt snowball.
• Raise your deductibles once Baby Step 3 is funded. Use your full emergency fund to lower your premiums.
• Add an umbrella policy as your net worth grows. Revisit it sooner if you have higher liability exposure.
• Schedule a long-term care conversation around age 60. Qualify while you are healthy.
• Skip small claims as you build wealth. Handle minor costs yourself and use a standalone roadside plan like AutoHero Roadside to keep your record clean.

Your Next Step

Wherever you are on the Baby Steps, the right coverage should fit the stage you are in, not the stage you were in five years ago. Reach out to Trailstone through our website at www.trailstoneinsurance.com or give us a call. We will run a complimentary review of your current insurance, compare it across more than 40 carriers, and send you a written summary for your records so you can make a confident, informed decision.

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group