Whether it’s auto, home, or health, it’s probably safe to say that you already have some form of insurance. Maybe it was required when you bought your home or car, or maybe you have insurance because it provides peace of mind. Whatever your reason, insurance is an important part of financial planning.
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. In essence, 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.
Let's use Auto Insurance as an example.
Insurance is a way to help not only you but those around you. Almost every single state requires you to carry at least a minimum amount of liability insurance. With millions of vehicles out on the road, accidents happen. And sometimes people aren’t able to pay for the damages. States started mandating liability car insurance, which is what helps pay for damages caused by a driver to other people or property.
Let’s say you get into a fender bender. While those types of accidents don’t usually require extensive car repairs, a thousand-dollar bill is still a significant cost. If you have adequate insurance, it can cover the cost of repairs and even set you up with a rental while your car is in the shop.