For the average person, insurance policies are among the most misunderstood financial products available. Insurance can often be viewed as an obligation placed on a person, such as the home insurance that may be required by a mortgage. Many drivers, for instance, aim to find the cheapest auto insurance available rather than the product that best serves their interests. In that context, let us consider five things about insurance that everyone should know.
1. Insurance mitigates financial liability.
Financial liability happens to all of us no matter what we do for a living or how young or old we are. Sure, you might get lucky. But what you want to do is protect yourself against the average liability for someone in your financial position. What you pay in the short-term will be far less than what the average liable party has to pay out.
2. Most people require the same insurance in concept.
Every adult has the same basic insurance requirements: health, life, finances and possessions. These four pillars never change. Certainly, the homeowner with children has insurance concerns on a larger scale than the single person fresh out of college, but the foundation is the same. Setting the foundation now makes it easier and more affordable to evolve it as you take on more responsibilities.
3. Bundling is a way to reduce costs.
If we accept that you require all four pillars, then your best strategy is to find an agent you trust who can help you protect all four corners. This makes it easier to have a bird’s eye view of your protection, and it also lets you take advantage of discounts for bundling policies.
4. Policies should never lapse.
There many come a time in your life where you move from one provider to another. Some drivers do this regularly. Never let there be a gap between those policies. In some cases, there can be legal penalties, such as with auto insurance. Additionally, if you get unlucky and something goes wrong in this period, an insurance provider may try to use that lapse against you.
5. Some policies let you borrow money.
Some policies, such as life insurance, build up value. You can actually borrow against these policies. These loans are secured and tend to have low interest rates and favorable other terms.
Although many people don’t view it as such, insurance is a tool through which you secure your long-term wealth. How much insurance do you need? The answer is a matter of determining your risk. This can be difficult to do, and it often helps to get the advice of a professional you trust. It is also important to note that your risk will change as you grow older and your lifestyle evolves.