You let an insurance policy lapse and think, “I’ve been paying into this scam for years and never needed it. I’ll get another policy but let’s give it a few months and save a few hundred dollars.”
Insurance is meant to cover catastrophic loss, the kinds of financial events that would force you into bankruptcy almost immediately. We’re talking about potential problems that could cost tens of thousands or more.
That means you don’t need insurance to cover the little things, those little expenses filed under ‘life happens’ that might cost a couple hundred dollars. For these smaller expenses, you should have an emergency fund.
That should help give you an idea of the kinds of insurance you need. 1. Protecting your home from fire and total loss, yes. 2. An extended warranty on that $50 microwave, no.
When you buy an insurance policy, the representative will ask relevant questions to the insurance topic. 1. For health insurance, you’re asked questions about your medical history.
2. For home insurance, you’re asked questions about the value of your home and things that might lower risk like home security alarms.
Your answers to these questions put you in a group with all the people that answered roughly the same way. By studying each group, the insurance company can get an idea about how often the average person will file a claim and for how much.
The average household spends more than $4,300 on healthcare each year. Without health insurance, you could be looking at medical bills well into the tens of thousands in any given year.
Your odds of a fire completely destroying your home are fairly long…but think of the costs if it does.
Besides fire, home insurance covers the cost to rebuild or replace after a range of other accidents that can all wreak havoc and leave you homeless.