• As stated earlier, the insurance question is a bit more complex than some others. Some insurance is required by law so the question is how much should I choose. Other insurances are discretionary so the problem becomes should I get some and how much should I get? Remember that buying insurance is a risk management technique that most people accept as a good one. Frankly, insurance is designed to keep your financial house from collapsing and keep you from getting in a situation that can cause you to “lose it all”. If all is not very much then the need for extravagant policies with high benefit levels may not be necessary. Recall most people have more when they get older so that may cause you to need more coverage later in life. Realizing this fact, it may be cheaper to buy insurance earlier in your life (even when you may not need it) in order to have cheaper premium rates when your older and really need or want the insurance coverage.
   
• Much has already been said about the personal aspect of insurance decisions and the time frame connection. For many, the most difficult aspect of making insurance choices is accepting the fact that most people live a long time…longer every generation and insurance choices now are usually for your well being later in life (at least in the health, personal property, liability, and retirement areas). Seeing yourself as a sixty eight year old woman or man experiencing the “golden years or not” is hard but very much needed. Dream and picture who you are when you are old. Help from others can be very helpful in this step. Old people usually like to chat and they may share some of the “only if I would have” statement that might help you learn from others mistakes.
   
• Listing alternatives in regards to insurance will be a huge and time consuming task. Don’t get lazy and back away from this one-it is too important. What insurances must I have and what is the minimal legal coverage? Is more coverage available? Automobile insurance is a good example of this where most states require liability insurance (check your own state’s laws), but much more is available to buy from collision, uninsured motorist, comprehensive, lower deductibles, to name a few. Follow this decision by looking into what other things can be covered by insurance. The answer is virtually anything that has a risk associated with it. Common insurance categories include dental, general health, life, disability, long term care, vision, liability, personal property, homeowners, to name a few. People who rely on their hands (musicians, surgeons, artists, wide receivers, and others) insure their hands for millions. Seeking advice from experts as you identify alternatives that fit your view of your life and levels of coverage and the costs will be a necessary activity in order to feel comfortable that you have all/most of the options. This may be a good time to form a relationship with an insurance agent and/or company that can help you throughout your life. Don’t forget to shop around, however.
   
• Evaluating the alternatives by determining and weighing the expected benefits with the expected costs of each will require time and a good pencil and paper or spreadsheet. The lists will be long as the options are many. Remember you can’t have it all and risk management is a relative thing. Your insurance benefits don’t need to cover all of the risks just an amount that will keep you from “breaking the bank” and let you keep pursuing your life’s goals. Don’t forget having a savings account is a risk management device as well as is pursuing and achieving a good job. Be sure price is factored into your choices because it is possible to have too much insurance. Create a short list of acceptable alternatives that will fit your life now and in the future (you can change later in most cases).
   
• Share your short list with friends (young and old) a lawyer, insurance agent, retirement planner…note more will be said about retirement planning in another application. Check with family members-what do they see as good alternatives and not so good. What do they feel should be added to your short list?
   
• Once you have committed to certain insurance options, shop around for the best product at the best price. Insurance is like any other consumer good, prices and quality varies so go “kick the tires, take them out for a test ride” and start managing your risk.

INSURANCE - WHAT KIND AND HOW MUCH?
An Application Supplement

Much has already been said about insurance or risk management products, but a few new ideas and suggestions should be highlighted and added. To begin, remember that buying insurance is an attempt to mitigate the effects of financial disaster. Many events can occur in one’s life that could drain financial resources. Beyond this, some events can place a person in huge debt that is very difficult - if not impossible - to recover from. No one is immune from this possibility no matter how wealthy you are or what lifestyle you choose. This fact forces everyone to consider obtaining an insurance portfolio. In addition, personal circumstances such as age, gender, career, lifestyle, family status, location, and health, to name a few, influences risk management decisions. This forces good risk managers to routinely evaluate, re-assess, and change their insurance portfolio.

Fortunately, one decision making principle can be used for all insurance-risk management choices. This perspective begins with the realization that many of life’s decisions relate to “it is not a matter of whether, but a matter of how much”. 

Obviously, people do not want to buy every insurance product available with the highest coverage limits. Each and every product and coverage limits is a marginal choice depending upon the law, a person’s financial status, or simply how much risk one wants to experience. Once the choice is made to have an insurance product, the main question becomes is how much coverage is needed given each individual’s circumstance. When using marginal decision making, the decision maker weighs the expected additional benefits from an action against the expected additional cost - in this case of adding more insurance coverage. Following this approach will keep people from over or under buying the insurance category and amount of coverage.

It should be noted, that the pricing of insurance coverage also makes marginal decision making important. For example, automobile insurance has many features and coverage limits. In some cases, buying low coverage limits (say $25,000 of liability) is relatively expensive (say $75 per month), but buying higher coverage limits is relatively inexpensive (say $100,000 of liability coverage is only $86 a month). The additional coverage or amount of risk managed is high relative to the monthly cost of only $11. Thinking on the margin may make this choice a “good deal” depending upon one’s needs and circumstances. Fortunately, this thought process can be used for all risk management/insurance purchases.

Finally, remember that insurance decisions can impact other important financial matters. Disability, health, and life insurance choices can have an indirect or direct impact on a person’s retirement plan. Actually, it is difficult to make a life plan without considering risk management. In addition, the consideration and choice making regarding risk management is a birth to death requirement. Always keep risk management and insurance in mind as well as change your mind when personal circumstances dictate.

ADDITIONAL SOURCES

1) Smart Family Finances - Young Adults and Insurance.
2) Personal Insurance - Who Needs Life Insurance?
3) Quote Hero