Insurance Information

Insurance is a way to protect against risk. The insurance information here will help you determine what to insure against and when to self insure.

The way insurance works is that you identify a particular risk (usually something that is devastating or catastrophic) and you spread that risk among several people so that each of those people is protected. Of course, for providing this service, insurance companies expect a profit.

For example, let’s say your entire net worth is about $50,000 and you decide to buy a house for $200,000. You borrow $160,000 from the bank and put down $40,000 of your own cash.

The chances of your house burning to the ground may only be about 1 in 1,000. But if it happens, you will not only be out the $40,000, but you will also owe the bank $160,000 for a house that has burned to the ground.

This would ruin you financially and you may never recover. But if you pay an insurance company $300 per year, and 999 other people also pay the company $300 per year, 1 in 1000 of the houses burn down and the insurance company will pay the entire cost of losing the house.

What that means is that if your house doesn’t burn down, you get to help pay for the person’s whose house did burn down. That is basically how insurance works. It protects you against risks that could ruin your life.

You can get insurance on nearly any potentially catastrophic event. Some are more common than others and some, like car insurance, are even required by law. Almost all of us will have at least one catastrophic event happen in our lives. Insurance is a great way to protect against these catastrophes.

You can find insurance information anywhere on the net. Insurance information is usually given by insurance agents whose principle income comes from selling insurance.

So naturally, most insurance agents feel that most risks are worth insuring against. The insurance information on this site will try to help you decide what risk is worth insuring against and which is not.

Types of Insurance

For example, life insurance protects your heirs against the loss you. If people depend on your income and you die, they will be hurt.

Auto insurance protects against car accidents, homeowners insurance protects against your house being destroyed, umbrella insurance protects your assets in case someone sues you, long term care insurance protects your assets in case you have to go into a nursing home for a long time, and annuities protect your assets in certain circumstances from market fluctuations.

There are many other types of insurance designed to protect your business or your assets and all of them have a place. If a particular event would devastate you or your family financially, you may need some insurance to protect against it.The Problem with Insurance

When considering insurance, be careful to make sure that you are protecting against a real catastrophe. What I mean is that you don’t want to buy boat insurance if you don’t own a boat! But a lot of people buy insurance to protect against things that would not be catastrophic.

Remember that the thing you are insuring against will probably never happen. So don’t just throw all your money away trying to get rid of every possible risk there is. Taking some risk is how people make money so if you insure against every risk you will never make anything and you will never grow wealth.

How Not to Use Insurance

For example, often, much of the insurance information that is out there encourages young people to buy life insurance. This may be the right thing to do in certain circumstances. But if you buy life insurance on yourself at the age of 18 when you have no wife or children, what are you protecting against? Your parents probably won’t need the money if you die unless it’s a little money to help bury you. But often I find young people buying $100,000 or $200,000 life insurance policies.

I look at life insurance as a way to protect a family that is dependant on a person’s income. For example, if a family lives off the income of only one person and has small children, the death of that person would ruin the family.

It may be that the income is irreplaceable or it may be that the person left with the kids simply wouldn’t want to work. Either way, it may make sense to buy life insurance on the person whose income may be lost.

Don’t buy insurance unless you have a real risk. If it’s something that you are truly worried about, and that thing would be catastrophic to you or your loved ones, and the insurance isn’t outrageously priced, then it would probably be a good idea to get insurance.

But if it’s something that wouldn’t devastate you or your family if the worst case happened, consider self insuring. For most people, this will maximize their ability to grow wealth.

Don’t buy into the insurance information that indicates that every single risk should be insured against. Take some risks and let the insurance company take only the ones that would be most devastating to you or your family.

What to Watch Out For

Remember that when considering insurance, the insurance salesman gets paid to sell you the biggest policy they can. Don’t let them push you into buying more than you need. They may make up all kinds of risks that you need to protect against. Make sure you agree that this is really important to you before you commit to a contract.

Also remember that in many cases the money you put into insurance will never come back to you because the event you are insuring against will never happen. Insurance companies don’t make money by giving a lot of it away. They make money because they charge you more than the actual risk.

That means they will calculate the exact odds of the catastrophic event happening, and then they will charge you more than what those odd are so that they make a profit on average. Insurance is NOT a great way to grow wealth even though some insurance salesman act like it is and even though much of the insurance information that is out there indicates that it is. Insurance is a way to MAINTAIN wealth when bad things happen.

Many insurance agents sell insurance as an investment. There are life insurance policies and annuities that offer some of the benefits of investments along with some insurance benefits. However, these are rarely the best alternative for people to invest their money because the insurance cost is often so high.

Remember the insurance salesman can often only sell you insurance. Of course they are going to think it’s a good investment for you because that’s all they really have to offer. Make sure you understand the costs and what exactly you are insuring against before you make any commitments to an insurance product. Read all the insurance information you can and make sure to read about both the arguments for a particular insurance and the arguments against.