Today, you can get insurance on almost every purchase you make. Besides the traditional, such as auto, home and life insurance, you can also insure your computer, MP3 player, jewelry and works of art.
Celebrities have even gone as far as to insure particular body parts: Bruce Springsteenâ€™s voice is insured for $6 million dollars, and NFLÂ quarterback Peyton Manning reportedly insured his right arm. But when it come down to it, how important is insurance?
All choices involve risk. For example, driving a car involves the risk of an accident. Insurance is about reducing financial risk. Auto insurance wonâ€™t reduce your chances of being involved in an accident, but it will protect you from financial loss due to car repairs, medicals costs or lawsuits that result from an accident.
Protecting yourself against sudden financial catastrophe is as much a part of good money management as paying your bills and accumulating wealth. Often, people look only at the cost of buying insurance and decide not to buy it because they donâ€™t receive anything tangible in return. But thatâ€™s like saying seat belts are useless because they donâ€™t matter unless you are involved in an accident. Real financial wellness means protecting yourself against the financial impact of events that you canâ€™t control.
When choosing insurance coverage, the best rule is to â€œinsure only what you cannot afford to lose.â€ In other words, if the loss would create a crippling economic burden and cause you major financial harm, then you should have insurance for that loss.
Remember, this will create a monthly or periodic expense, so make sure you include the cost in your budget. Paying for any type of insurance in a time of financial hardship may be difficult, but not having insurance can lead to an even worse financial outcome.