Why do I need insurance?

Most us of find it painful to pay insurance premium because what you are purchasing is not tangible.  With the house or car we are constantly seeing and using the item so it makes it easy to relate to the making payments.

Insurance is all about risk management – transferring risk to a company that charges a fee for taking on the risk on your behalf.  It is about protection rather than accumulation.  There are many types of insurances and each is used to protect you or your property different ways.  Some are mandatory and while others it is left to the individual to seek and acquire the protection by transferring to company.  As such it is important to review your own vulnerabilities to see what you need to protect.  If however it is a matter of limited cash available to pay the necessary premiums then one needs to look having just the important coverage.

1.  Health insurance is the most important.  This is a hard one for people who visualize themselves as being healthy but unfortunately it is not all about being healthy today.  It is about not knowing what tomorrow holds and ensuring your ability to pay for your medical bills should something unexpected happen.  It is about not being faced with a huge hospital bill that can cause financial ruin.  Currently there is a lot of talk about the Affordable Health/Obama Care.  Since there is a lot of information concerning this I will trying discuss this in a separate post. Nothing political but only the maneuvering around the options of the exchanges and comparison with what your employers might be offering or not offering.

2.  Home owner’s insurance is mandatory for those that have a mortgage. And the requirement is pushed by the lenders.  Since this protects your most prized possession it is important even after you have paid off your mortgage to ensure you keep your asset protected (yes it is possible and many people do actually get to pay off their mortgages - you just have to commit and strategize accordingly to achieve this.  I covered buying what you need vs. what you want in an earlier blog and plays well into buying the house you can afford).

For those that rent it is also important to protect your property and sometimes these items can be quite costly to replace.  As such renter's insurance will go a long way towards the peace of mind that you can recover in case of thief or unforeseen disaster.

3.  Automobile Insurance is mandatory and usually at a basic level depending in our state requirements.  It always blows my mind how many people out there still go without auto insurance and the risks they consciously put on their financial well-being.  Most of us buy a car more out of necessity than pleasure.  We use it for transportation to and from work.  If you are involved in an accident and your car needs work to get it back on the road, you need to know that expense is catered for.  As well as you getting a rental while yours is in the shop.  Some types of auto insurance cover medical bills related to accidents as well legal costs should any arise.

4.  Life insurance has many uses.  For those that are married and have young children life insurance can be used to provide financial protection for your family should you die prematurely.  It can also meet funeral costs and cover some medical bills should there be need.  Term life is ideal for the early stages of family life and it is of course cheaper than permanent life insurance.  Permanent life insurance needs and uses can be spread throughout the cycles of life from income for your family to estate planning.  A thorough review of your needs and affordable premiums is of course extremely important.