by Ryan Delp, CIC
Insurance is a very unique product in the marketplace. It can be a frustrating and confusing thing to purchase because, unlike most things that people buy, you don’t receive a tangible product in return. Not only that, but insurance is unique in that the provider of the product (the insurance carrier) can penalize you through increased premiums or cancellation of the policy if you use it too much.
So why do you need insurance if all you are getting for your money is a pile of papers that will most likely make its way either into a filing cabinet or worse, the circular file, only to be tossed on trash day? Let’s take a look at several reasons we all need to have insurance:
1. It’s required. Many different types of insurance are required either by law (auto insurance), by a mortgage company (homeowner insurance), or to get a job or secure a contract (business insurance). If you are not able to provide proof that you have certain types of coverage, you are not able to buy a car or a house, or step onto a job site.
2. You can’t afford not to. Raise your hand if you have enough disposable income to buy a replacement for your car or house in cash. Very few people are able to do this. Instead, we pay a smaller amount each year to an insurance company for the promise that if we have a claim, the insurance company will cut a check for an amount that we otherwise could not afford. In that same vein, how many of us could pay attorney fees for six months after we are sued because a neighbor slipped and fell on our property? Again, those who could are few and far between. Insurance carriers give us the ability to pay a much more affordable price for these expenses or services instead of having to pay for the entire amount out of pocket.
3. It protects your assets. Similar to point No. 2, insurance gives us the ability to protect ourselves at levels that we could not afford on our own. For example, say you injure someone with your car and their medical bills are $100,000, but your car insurance limits are the state minimum (in Illinois, that would be $25,000 per person). It is possible, and even likely, that you will have to come up with the remaining $75,000. That can be done through wage garnishments or through a lien on your home. Having insurance—and, more important, having enough insurance—will prevent this from happening.
These are some of the reasons you need to have insurance. If you want to see a great visual presentation as to the importance of insurance, check out this video from our friends at Financial Design Studio.