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What is Insurance and Why Do I Need It?

Admittedly, insurance isn’t a very exciting topic. But it’s oh so necessary. And it’s also something that people put off or find the least expensive option that fulfils the requirements for a home loan or the insurance required by some states to drive a car.

But what exactly is the reason for insurance? You’ve worked hard to create your personal financial foundation for you and your family, so you want to be sure that everything is protected. Accidents and disasters can and do happen, and if you aren’t sufficiently insured, it could leave you financially devasted. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head.

Insurance is a form of risk management. So, rather than directly assuming the consequences for the accident or disaster, the insurance company takes on that risk for a fee—the premium you pay them.

Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate. We use the term “significant” because if the potential loss is small, then it doesn’t make sense to pay a premium to protect against the loss. After all, you would not pay a monthly premium to protect against a $50 loss because this would not be considered a financial hardship for most.

Hand holding a paper home, car, family, insurance conceptInsurance is appropriate when you want to protect against a significant monetary loss. Take life insurance for example. If you are the primary breadwinner in your family, the loss of income that your family would experience as a result of your premature death is considered a significant loss and hardship that you ought to protect them against. It would be very difficult for your family to replace your income, so the monthly premiums ensure that if you die, your income will be replaced by the insured amount. The same principle applies to many other forms of insurance. If the potential loss will have a detrimental effect on the person or entity, insurance makes sense.

You can find an insurance policy to cover almost anything imaginable but only a handful of policies are necessary for the average family. You work hard throughout your life to build wealth and live a happy and comfortable life, so some types of insurance can protect your possessions, income and even provide for a loved one when you are gone.

There are obviously several different areas in which insurance ought to be considered. For instance:

  • Life insurance, to protect a family after a death from the ensuing loss of income
  • Health insurance, to protect you from potential disease and accidents
  • Home insurance, to defend against burglary, fire, or flooding
  • Protecting yourself against lawsuits
  • Car insurance, to protect against accidents, theft, etc.

And if you own a business, you might also consider:

  • Protection against the death of one of your most important employees
  • Insurance that allows you to buy out a partner or shareholder after death
  • Insurance that protects your business from interruptions or unforeseeable circumstances that lead to a loss of income

Risk

Life is full of risk, whether you like to think of it that way or not. Some are preventable or can at least be minimized. Some are avoidable and some are completely unforeseeable.  Risk is an unavoidable part of life. When thinking about insurance, it’s important to take into account the type of risk and its potential effects, the cost of those effects, and what (if anything) can be done to minimize that risk.

So how can you possibly know what kinds of insurance to purchase, and then, how much coverage you need from your insurance? Download our free report “Top 5 Things You Need to Know About Insurance to Protect You and Your Family” to find out today.

Dino

Leading the industry through his innovative approach, Dino Katsiametis has over 17 years of extensive experience within mortgage, banking and real estate industries. His passion for the collective financial and investment services sector combined with his distinct insight, has catapulted Money Matters with Dino onto the forefront of financial news.

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