There are many reasons for buying an insurance policy. It could be an insurance for your car, house or yourself. No matter what is the reason, the very first step to choosing an insurance policy is to understand the underlying purpose of getting one in the first place.
Basically, buying an insurance is about risk management. When you get an auto insurance, you are trying to transfer the risk of potential liability or potential damage to your car to another party. This party will get a premium for insuring your car while you will get a peace of mind by knowing that somebody will provide coverage in the event of an accident.
Once you are able to understand that insurance is about risk management, it will become easier to choose an insurance policy that is suitable for you. The general guidelines for choosing one could be summarized as follows:
1) What is the risk to mitigate or transfer?
Life insurance (e.g. whole life, term life, etc) - to mitigate the risk of loss of income in the event of death, disability or terminal illness.
Health insurance - to mitigate the risk of medical cost
Car insurance
Home insurance
etc
2) How long do you need to mitigate or transfer this risk?
3) What is the size of the risk that you need to mitigate or transfer?
This is basically the coverage that you need.
Nowadays, there are many perks being tied to insurance policy such as investment return, savings, etc. If you understand the underlying principle for getting an insurance, it will become easier to know whether these incentives are suitable or relevant to you. Just bear in mind - Make everything as simple as possible.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
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