Insurance companies take on your risk for a fee, known as a premium. By buying insurance, you are protecting your wealth and income against unexpected events that can take away your wealth or income. There are many types of insurance you can buy to protect yourself, your family, and your property:
- Automobile insurance
- Homeowner’s Insurance
- Health insurance
- Disability insurance
- Life insurance
There are also specialty insurance companies for special risks, such as insuring professional football or basketball players against a career-ending injury. Then there are also a few insurance programs administered by federal and state governments that people often forget:
- Social Security Insurance
- Medicare insurance
- Unemployment insurance (federal and state)
Insurance companies have experience with the costs of fire, accidents, and casualties, so they price their premiums on anticipated claims against the insurance policies they sell. As a consumer, you should do a cost/benefit analysis. Always get at least three quotes for your insurance, and if you have been with a company for a few years, you should get quotes to make sure you are being charged a competitive premium.
However, there is one rule that you should always follow. If a potential casualty loss is so large that it will really hurt you financially, you must insure against it. For example, if your house burns down, even though this is an unlikely event, you should insure against the loss because of its financial consequences.