Insurance is the personal finance area most prone to overselling (buying unnecessary products) or complete neglect (missing essential coverage). The foundational principle: insurance transfers low-probability, catastrophically expensive risks; it’s not a wealth management tool. Coverage for high-frequency, low-cost events is typically inefficient.
## Insurance Priority Sequence
**First priority: Health/Medical Insurance**
Hospitalization costs are the primary source of “catastrophic expense” risk for individuals. Cancer, cardiac events, and other major illnesses can easily reach hundreds of thousands to millions of RMB in treatment costs.
**Social health insurance** (employee or resident medical insurance in China): mandatory basic medical coverage; enrollment is non-optional and forms the baseline.
**Million-yuan medical insurance (百万医疗险)**: annual premiums of a few hundred RMB; provides ¥1–6M in hospital expense reimbursement, including drugs outside the social insurance formulary (especially oncology targeted therapies). Best value commercial health insurance product.
**Second priority: Critical Illness Insurance**
During treatment for major illnesses (cancer, cardiovascular disease), patients typically cannot work — facing simultaneous income interruption and medical expenses. Critical illness insurance pays a lump sum upon confirmed diagnosis (independent of actual expenses), usable for living costs, disability income replacement, and non-medical expenses during out-of-city treatment. Recommended coverage: 3–5× annual income, guaranteed to at least age 70.
**Third priority: Term Life Insurance**
Anyone with family financial dependents (spouse, children, aging parents) should hold term life insurance — providing a lump-sum payment to family members upon death. Term life has dramatically better value than whole life at young ages: premiums are very low while coverage is high. Typical coverage target: mortgage balance + children’s education costs + 3–5 years of family living expenses. Single people without dependents or mortgages can defer.
**Fourth priority: Accident Insurance**
Annual premiums of ¥100–300 cover accidental death and accidental disability — low-cost baseline protection recommended for everyone.
## Common Insurance Traps
**Dividend/universal/variable life insurance**: combining insurance with wealth management; typically high fees, low returns, poor liquidity. Don’t use insurance as an investment vehicle.
**Return-of-premium insurance**: “refunds premiums if no claim” — actually buys limited additional protection at much higher premiums, with internal rates of return typically 1–3%, far below index fund returns. The premium difference invested separately is almost always better.
**Over-insuring children**: before buying critical illness insurance for children, ensure parents have adequate critical illness and life coverage — the child’s financial risk is the parent’s inability to pay treatment costs, not the child’s income loss.
See [Emergency Fund Building](https://sunqi.org/emergency-fund-building-en/), [FIRE](https://sunqi.org/financial-independence-fire-en/), and [Index Fund Investing](https://sunqi.org/index-fund-investing-basics-en/).
