Every decision that people make comes with expected benefits and expected costs. In most cases, people like to make decisions where the expected benefits exceed the costs. This is particularly true when the confidence level regarding the accuracy of the cost benefit calculations is high. The decision to purchase insurance as a risk management tool is no exception. Most people would agree that using insurance to manage certain types of risk is a good idea, but as so often is the case, the what and how much decisions are critical. Be sure to keep these questions in mind as you seek answers to the insurance question and be sure to use marginal analysis as you follow the decision making guide.

This story begins with a person planning to be on their own. Leaving home offers many opportunities and it is an exciting time of one’s life. A real paycheck, a place of your own, and basically being in charge of your life allows for many good feelings about your future. Fortunately, this person realizes that being on your own comes with the possibility of having bad things happen. You need to understand and manage the possible bad things in order to maximize the “good life”. As people leave home, they are reminded that they may no longer on their parent’s health insurance and they need to buy their own car insurance as well. "Oh insurance, I haven’t thought about this" is a common response from a person leaving home and being on their own for the first time. To help in the transition of becoming in charge of your life a person needs to be insurance literate. To begin with, insurance covers personal needs such as health, dental, life, disability, and long term care. In addition, it covers your property with homeowners, automobile, and liability. Good planners realize that buying insurance coverage is buying the ability to mitigate huge costs that people probably can’t afford on their own, particularly when they are just starting out. 

Because it is important to remember that insurance needs are individual and unique lets have this story focus on a twenty one year old female (Jennifer) who has completed college and landed a forty thousand dollar a year job as a junior executive in an advertising firm. She has an acceptable budget (insurance is now an added category) and after paying bills has some discretionary income. She is smart and has researched the insurance topic and come up with the following general guidelines:

• Make your insurance purchase specific to you. Lifestyle goals, health, current financial fitness, etc. should help customize coverage to the individual.
• Seek adequate insurance coverage to protect you in the event of a tragedy, but don’t over insure or buy redundant coverage.
• Buy insurance as you would buy any big ticket item. Shop around, look for multi-plan discounts, select an insurance company and/or agent with a great track record and one that works for you. Often consolidating coverage is easier to understand and cheaper.
• Life insurance coverage is family specific and will change as the family grows, careers change, and income levels change. 
• Remember that the best way to manage risk is establish a portfolio of personal assets with insurance. Deductibles will help maximize catastrophic coverage without breaking the bank.
• Review insurance decisions often. Good insurance agents will contact you often to discuss your coverage. Remember discussions with agents don’t necessarily mean buying more insurance.

The stage is set for the what and how much decisions to be made. List the possible alternatives (perhaps with the help of insurance literature, websites, and/or an agent. The list could include health, dental, disability, life, automobile, homeowners, liability. Determine the range of costs depending upon the type and amount of coverage. Factor in how much risk you (Jennifer) can cover on her own. If Jennifer’s situation is not like yours substitute your circumstances if you like. Begin to be thoughtful and make a decision using the decision making guide for each type of coverage or policy. Keeping good notes is essential here as they will save you time as you revisit your insurance coverage decisions at least annually.    
            

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