Insurance: Why do we need it?

Insurance is a reality of modern life. Many state laws require homeowners and automobile insurance. On top of that, most people have health insurance and many people have life insurance for themselves and their loved ones. There’s long term care insurance, long term disability insurance, umbrella insurance… the list goes on and on.

The challenge with all of these insurance types is that people are often unsure as to what exactly they need. Not only are there tons of different kinds of insurance floating around, there are many different types as well.

Muddying the water even further are insurance salespeople. Most are honest. Some will sell you anything they can.

What can a person do to simply stick with the insurance they need at a reasonable price? The first step is to know why you’re insuring.

For me, most of the motivation for insurance comes from two sources: my children and the law. We have homeowners insurance and auto insurance as required by law, and we have health insurance (for our family) and large term life insurance policies (for Sarah and myself).

Let’s take a look at the life insurance choices in more detail. For each policy, I can state exactly why we have that policy.

For myself and Sarah, our large term policies exist because we want to be able to maintain our children’s lives as well as we possibly can if something were to happen to us.

Why aren’t our children insured? We can afford any burial expenses for them out of pocket, so there is no need for term insurance.

Why don’t we have any investment-type insurance policies for anyone? We can get better investment returns outside of such policies based on the returns we’ve been quoted.

When you know the “whys,” decisions related to insurance become easy. The challenge is to sit down and figure out the “whys.”

For Sarah and myself, those questions are the fodder for a lot of discussions between us. We make most of these decisions together, and our discussions not only helped us understand what insurance we needed, but helped us understand what is truly important to us.

One final suggestion: talk about insurance before you talk to a salesperson. Investigate what you’re buying on your own and know why you’re buying it. That way, you can largely ignore the sales pitch and head straight for the items that you actually need.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.