Buy what you can afford and feel comfortable with. You can always upgrade it in the future. Do NOT buy into this whole you have to spend "X" on a wedding ring, its BS. If you're getting married, you both should be similar with each-others finances already.
Go to a place that stays WITHIN your budget. A lot of places will try to push you to a higher priced ring, give you some discount, throw a bunch of numbers at you and try to sell you something outside of your budget. If they won't offer you rings in your budget, that's a sign to walk.
I went to a few places, ended up at Iowa Diamond, was seriously the only place that was willing to stay within my budget and provided options. It was cool that I got to pick out the diamond.
As others mentioned, go for for quality and clarity, not size. (Unless you need to buy the biggest you can to make up for.....)
For insurance, yes get the insurance as you never know how she might lose it. I added on a personal article policy when I was at State Farm. Cost like $30/year. I did not add it to the homeowners insuance because I did not want to have to pay the deductible or make a homeowners claim. There are places you and buy standalone ring insurance. Jewelers Mutual is a Geico company that sells policies online.