Sufficient Insurance for your Needs

When buying insurance intelligently there is one extremely important rule that you should follow; it cuts to the core of what insurance's true purpose is: Never insure a loss that you can afford to take. What does this mean? Simply put, it means that the role of insurance is to keep you from going under financially should the insured event come to pass. It also means that insurance is not inexpensive. Insurance companies know a great deal about probabilities and they price their policies to cover their risks and overhead costs while allowing for a healthy profit margin. In other words, buying insurance is like betting against the house in Las Vegas. The odds are against you or any one person actually collecting a payout. And the house keeps raking money in from everyone.

You should therefore only buy insurance when you can't afford to absorb the loss associated with the insured event. Let's look at a blatantly simple example. Suppose you bought a $15 portable radio, and at the checkout counter the salesperson talked you into purchasing an optional three-year warranty for $24.95. How much sense does this actually make? If the radio stopped working, would you really go through all the trouble of sending it back to the manufacturer for repair? If the manufacturer is willing to sell you an additional warranty, it should indicate that the company knows it probably won't be needed; and if it is, they've already gotten you to fork over more than the price for a brand-new replacement anyway. The bottom line is that you didn't need this warranty because it wouldn't break your bank if that $15 radio went belly-up.

Now, if you were a multimillionaire and owned five or six homes you might consider going without homeowners' insurance since you'd probably still be able to get by if one of your homes were lost. Conversely, if you only own one home, it's vitally important that you have adequate insurance should anything happen. Fire, theft, earthquake, flood and other occurrences should all be covered in order to protect your home and your investment. Additionally, your homeowner's policy should also protect against any personal-liability event that might occur on your property, such as someone slipping and falling on the front steps.

But in order to protect your home in the current lagging housing market, it's wise to insure more than just your house. It's widely known and accepted that traumatic events are what drive families into home foreclosure. Unexpected medical expenses, particularly long-term disabilities, are just the types of occurrences that could threaten a home mortgage.

Tens of millions of Americans today have no medical insurance. Originally a problem of the poor, this dilemma is now affecting the middle class as well. Many middle-class individuals are between jobs and have let their insurance lapse. Numerous others have opted for self-employment but haven't adequately planned for their medical insurance needs. Even those who carry medical insurance may not be sufficiently covered. With hospital and all other healthcare costs already being alarmingly high and growing perpetually more expensive by the minute, it's imperative that everyone reviews his or her policy to ensure that coverage is sufficient for their needs. Homeowners without adequate medical insurance could eventually be staring mortgage-payment problems squarely in the face.

It should also be noted that many mortgages depend on two people's incomes to properly service the debt. It would therefore only be reasonable for both earners to have adequate life insurance. If affordable, it would be a great advantage if the benefit payment of either were sufficient to pay off the mortgage. Then, if the unthinkable did actually happen, there would simply be one less major item to be concerned with.