Whether it’s car, home, health or life, it’s probably safe to say that you have insurance in some shape or form. Maybe it was required, like when you bought your home or car. Or maybe you have insurance because it provides peace of mind, knowing you’re financially protected from the unexpected — or maybe both!
Whatever your reason, insurance is an important part of sound financial planning. And it’s a small price to pay for the protection you get.
Why Is Insurance Required?
Insurance is a way of transferring risks. For example, if you make a big purchase, like a new car or home, and you take out a loan or mortgage, your lender wants to be sure that your vehicle or home is financially protected from potential damage. How do they make sure of this? They protect their investment by requiring you to purchase insurance. So you put the cost of a potential loss into the hands of an insurance company in exchange for your premium, and they’ll invest your funds and pay out if you file a claim — subject to the terms and conditions of your policy.
Let’s talk about car insurance for a minute. Almost every single state requires you to carry at least a minimum amount of liability insurance. Why? Well, with millions of vehicles out on the road, accidents are bound to happen. And the truth is a lot of people aren’t able to pay for the expensive damages.
States started mandating liability car insurance, which is what helps pay for damages caused by a driver to other people or property. This is so those affected won’t suffer financially as a result of an at-fault driver not being able to pay them for the losses that occurred. And, to make sure you’re properly protected from the unexpected, you might even want to consider uninsured or underinsured motorist coverage, considering many drivers meet the bare minimum liability requirements in their state (or maybe don’t have insurance at all) and therefore might not be able to pay you if the damages incurred exceed their limits.
Insurance is a way to help not only you but those around you. Sure, you pay a fee to your insurance company and may never have to file a claim, but if you the unexpected does occur, you’ll be glad you don’t have to pay entirely out of pocket.