What factors are involved in deciding whether to take out insurance or not?

Question

Salesman like to imply that one should cover a risk. Where does this start and end? How prevalent is miss selling that one is bound to be better off? The range and complications of insurance seems to be increasing rapidly.

A lot of good points have been made. Personally I would like to think I insure for losses/expenses I can't reasonably handle bearing in mind the cost of the premium and the degree of risk. I know however I have more insurance than this philosophy strictly dictates and am probably boosting insurance companies profits unnecessarily covering risks I would be able to comfortably bear myself.

Answer 1

Insurance is a tool. Yes, you can buy TOO MUCH insurance.

Yes, it is complicated, and there's a huge range.

My advice - SET THE GOAL FIRST. That way, you're buying insurance, not BEING SOLD, if you see the difference here.

Of course, you can insure just about everything, FOR A PRICE. Sometimes it's just not worth the price for the risk. You, or your agent (that supposedly you trust) need to sit down and talk about risk vs. price.

Example: Most people in Minnesota do NOT carry earthquake coverage. Why? Well, the RISK is so small!! Even though the premium is low, it's not WORTH the cost.

Another example: most people DO carry health insurance. Yes, the premium is high!! BUT, the RISK is very high, and for a serious illness, it could prevent a bankruptcy or even death. MOST people submit health insurance claims every year worth at least HALF of what they pay in (more, if you have kids, LOL).


So, set the goal, and sit down with your agent.

Answer 2

I'd say that most mis-selling occurs because of a lack of knowledge on the agent's part. Personally trustworthy is different issue than being professionally trustworthy which includes having access to multiple companies and understanding their product offerings.

I also include a person's risk tolerance (in a broad sense) into the discussion of insurance. As an example: you may need life coverage for 30 years and a 30 year term would do the trick, but so would 3 10 year plans (if you switch plans every 10 years), but there are risks involved with that strategy. Those risks should be part of the discussion.

Answer 3

There is only one reason why people don't buy insurance.

"Simply they don't understand the true benefits"

Those who don't have insurance will call for help, either from parents, relative, friends and etc in the event of unforeseen circumstances. They will rather self insured (taking all the risk and and NOT
passing the risk to the insurance company).

Not to be rude, those who don't have insurance is consider selfish and expect others to bail them.

It is much more easier to pay the monthly premium than begging for help.

Whatever reason we put forward, if a person refuse to understand the true benefit nobody can help him.

The most basic insurance that everyone should have is medical. Imagine this scenario, if a doctor said you need 50,000 to save a person life, do you know how long you need to save 50,000 on a regular basis? if you save 250 a month it will takes you 200 months (16.7 years). What if someone is sick after 2 years, you may only have 6,000. where to find the shortfall. Never Never self insured it is the most silly thing to do. (Apologised for the strong language) , I just want to send the mesage across.

So the deciding factor are
1. can the plan cover your basic medical needs?
2. Illnesses?
3. Basic sum assured (at least 60 months of your salary)
4. Reasonable premium (shop around)

Budget wisely and buy something that you can afford and able to cover the basic requirement.

Answer 4

WE generally, or are required by law to carry insurance in order to drive an automobile on public streets and highways.
The risk of accidents is high and claims can be astronomical.
We carry insurance to protect us against that risk.

Fire, storms, medical coverage, death (in order to protect our income for spouse and children), debts, and home morgtage etc, are all reasons we buy insurance.

Without insurance, ones assets are all placed at risk.

As one ages and debts decline or dissapear, and responsibilities (children) decline, we don't need as much insurance unless one has a desire to leave an estate.