Some people find it easier to buy types of insurance when the cost of the premium is low. For instance, someone might buy an appliance, then purchase an extended warranty because the added cost is fairly low. Yet, the cost of an appliance repair is something the owner probably could handle without the added insurance and without significant financial impact.
I believe the focus of one’s insurance should be protecting against situations with potentially calamitous financial impact, such as loss of income, loss of health, or loss of life.
Our financial planning approach is to focus first on the need. We ask: Do you need to protect against this risk? What would it entail for that protection, and what kind of coverage is most appropriate? The answers help us build the right insurance arm of one’s portfolio.
We can also identify temporary risks and permanent risks. For instance, one might want to insure against the possibility that they will die before their children have completed college. But once the children have completed college, that temporary risk goes away.
On the other hand, one might want to assure that his or her spouse will always have survivor income. This is a risk that will never go away.
Once we understand the type of risk, and we have the parameters for that risk, we can then look into various options to provide the coverage, anything from self-insurance to a purchased insurance plan.