How To Decide Whether You Need InsuranceMarch, 28 2022
Regardless of the cause, disasters are traumatizing. Once you get over the initial shock of experiencing a catastrophe, your first thought is usually, “How am I going to put my life back together?” Insurance policies are typically the first thing that comes to mind, and they can certainly be a lifesaver.
Certain insurance policies are mandatory, and others are optional, so how do you decide whether you need insurance?
Responsible finance practices and concern for your loved ones should motivate you to consider how your collective insurance policies will prevent hardship and protect those you care about.
Certain Types of Insurance Policies Are Mandatory
With certain types of insurance policies, third parties choose whether you need to have insurance.
If you own a car, auto insurance is mandatory in all states except New Hampshire and Virginia. If you own or lease a car, your lender will require you to have insurance with certain minimum limits. While the government or your lender requires certain minimum limits, you have the option of increasing your limits and adding coverages to protect your livelihood.
The laws in your state may also require you to insure other types of vehicles you operate on the road, such as recreational vehicles and motorcycles.
Neither state nor federal laws require you to have home insurance. Nonetheless, unless you have the good fortune to buy your home with cash, your mortgage lender will require you to purchase home insurance.
When Is Insurance Optional?
Insurance is not mandatory in all situations, but it is often wise to have it anyway.
For example, if you rent a dwelling, you typically do not need to have renter’s insurance unless your landlord requires it. If there is a fire or tornado, you could lose everything if you do not have renter’s insurance.
Health insurance is optional unless your employer offers it and requires you to have it as a condition of your employment. Life insurance is also optional. Depending on the laws in your state, it may be optional to have boat insurance. Consumers also get to decide if they want to insure recreational vehicles such as ATVs and snowmobiles.
Finally, an umbrella insurance policy adds a layer of protection over your underlying insurance policies, and that is also optional.
Why Buy Insurance if It Is Not Required?
The best reason to buy optional insurance is to protect your loved ones in the event of your death. If you are married, have children, or support elderly parents, your life insurance policies will continue to take care of your dependents when you are gone.
Certain circumstances leave your loved ones financially vulnerable, such as if you have private student loan debt, are self-employed, or own a family business.
Do you work at a high-risk job such as a roofer or firefighter? Do you have dangerous hobbies such as skydiving or race car driving? These are also good reasons to buy insurance when it is not mandatory.
When Is the Best Time To Buy Insurance?
Simply put, the best time to buy insurance is when you are required to have it, or you need it to protect your family. Premiums will also be lower the younger you are.
Buying a boat, snowmobile, or ATV, or getting a swimming pool or trampoline are life choices that increase your risk of liability. These are also good situations where you need to make sure you have adequate liability insurance.
Insurance is an intangible product you cannot see or touch. Nonetheless, the value of insurance becomes clearest when you need it.
If you do not have car insurance, you could be responsible for another’s injuries or car damage, and it could put you into bankruptcy. If your home is paid for and you opt out of home insurance, you could be homeless in the event of a fire or other total loss. Those who do not purchase life insurance could place an extreme financial hardship on their families.
Ultimately, there is a place in your life for mandatory and optional insurance coverages. Understanding your assets, risks, and liabilities will help you understand how to decide which types of insurance you need and in what amounts.
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