Everyone knows that buying basic insurance, like auto and home (or rental) insurance, is a necessary part of protecting their personal finances and assets. With the varieties of coverage available and the diverse range of products catering to individual assets, it can be difficult to determine the right balance of coverage for your household. Buying too much leads to overpaying, which can drain your finances. Buying too little leaves you underprotected, though, and that can be disastrous in an emergency. Luckily, there are a few key strategies that can help you decide what coverage you need.
The first step in determining the level and kinds of coverage you should purchase is to inventory your personal assets and to evaluate the risks involved in your ownership of them. This requires you to think about not only what you own, but also how you use it, so it will be different for everyone. This outline from Duke University’s information portal on personal finance gives you a great step-by-step guide for doing this, and for asking yourself the right questions about whether you can afford to go without a policy.
Once you know what kinds of coverage you are looking for, it is also important to understand how your choices about payment and planning affect your overall financial situation. For example, if two insurers offer policies whose lowest annual cost is the same, but one of them allows you to pay a small monthly payment, where the other will only give you that rate with an up-front payment of the entire policy cost, the costs can affect your finances drastically.
For most people, smaller regular payments will be easier to absorb, which can affect other economic choices that they make by expanding or limiting the resources they have available and their ability to set aside reserve funds. Like with coverage choices, the most convenient payment terms can vary a lot from person to person, so it is important to speak to an insurance agent near you about your options and your needs. That way, you know what is available in your local marketplace, and you can make more concrete plans.
Beyond the immediate use of resources to make payments in a convenient way, your insurance choices also have a big effect on your long-term financial goals. Wikipedia outlines six key areas of financial planning that are suggested by the Financial Planning Standards Board, and in addition to listing protection as a key area, they also outline investment growth and retirement planning, both of which involve managing assets that include both real property and also financial instruments.
Planning risk in those areas often involves a combination of investment hedging and insurance protection, especially if you find yourself working in real estate rentals or with high-value commodities. Knowing the specialized policies and the companies that specialize in bringing you personalized coverage, and knowing the payment terms you should plan for, become integral to realizing the total value and expenses involved in those investments.
While your overall investment plan can seem very separate from your current insurance coverage, the two are related in key ways. Understanding and appreciating that relationship can help you to make better investments while remaining protected enough to have the peace of mind you need.