Smart Decisions About Insurance Products

Insurance is an area of personal finance that people often forget about. We pay attention to our expenses. We try to increase our incomes and save for the future.

But what types of insurance do we need? Are there areas of our lives where insurance is not necessary? These are questions that many people overlook.

On one hand, when we take out a loan to buy a home or car, the lender requires insurance on the asset before lending money. So these types of important insurance decisions are taken care of for us by an interested 3rd party.

But other insurance needs are completely up to us. So, here are several areas to think about when considering insurance.

Insuring your Earned Income

Are your spouse, partner or children dependent on your income to sustain their livelihood? If the answer is yes, then you need life insurance.

Life Insurance

There are different types of life insurance. Term insurance is the most straightforward and affordable.

Term life insurance is insurance that guarantees payment of a stated death benefit during a specified term. The policy's purpose is to provide insurance to individuals against the loss of life and the lost income that supports a family and loved ones.

On the other hand, if no one is dependent on your income, you should probably pass on life insurance.

Disability Insurance

Now disability insurance is a slightly different matter. If anyone, including yourself, is dependent on your earned income then you need disability insurance.

Then what exactly is disability insurance? Disability insurance is a type of insurance that will provide income in the event a worker is unable to perform their work and earn money due to a disability.

In rare circumstances, disability insurance may not be necessary. Let’s suppose you have no family or dependents. You are independently wealthy. And work for a living just for the challenge of it.

Well then no one, including yourself, will miss that earned income if you become disabled. That would be a rare circumstance when disability insurance is not necessary.

In most every other situation, you should make sure you have adequate disability insurance in the event you are no longer capable of working and earning your income.

Umbrella Insurance

Umbrella insurance coverage goes beyond the limits of your home and auto insurance. It provides an additional layer of insurance benefits to those who may be at risk of being sued for damages to other people's health, property, or privacy.

The added coverage provided by umbrella insurance is appropriate for individuals who own very valuable assets or have a high net worth.

On the other hand, if you are young and relatively asset poor, umbrella insurance is not necessary. No one will waste the time and money to sue you.

Umbrella insurance is appropriate if you have accumulated significant net worth, own assets that put you at risk (eg. real estate rentals) or participate in certain high-risk activities like coaching youth sports.

Summary

When reviewing your insurance needs. Make sure your coverage in the following areas is adequate:

Life Insurance

Disability Insurance

Umbrella insurance

Always ask yourself if you can afford to lose whatever it is you are considering insurance for. If you can afford to lose it, then perhaps you don’t need to insure it.