How Much and What Kind of Insurance Do We Need?

Ask Anna

There are two main reasons everyone will be required or needs to consider purchasing insurance in order to manage their personal risks. In most cases the legally required insurance will cover for liability or property damage where we ourselves are not the one who will be financially protected.

Required Insurance Generally Includes:

  • Legally required financial responsibility auto insurance. Most states set a minimum dollar amount of required liability insurance in order to register an automobile. The minimum requirement is for damages a person may cause to someone else’s property or injuries.
  • Loan and Financing Required Insurance is most common for new cars where we finance the loan. The bank holding title to the car requires the driver and loan purchaser to maintain insurance covering any damages to the car. Comprehensive and collision coverage in the even the car is damaged the loan or finance company will be paid the amount of the loan in the event of a total loss.
  • Home Owner insurance is generally required by the bank or finance company much the same way that auto insurance is required. The bank or mortgage company will require a minimum amount of insurance on the house itself to insure that in the event of a total loss the mortgage is paid first.
  • Employment Life or Disability Insurance is required for people working in some occupations. These are often required for employees where a large amount of money is invested for some reason, either in training or in another way. The company may want to insure their employee in the event that employee dies or becomes disabled because the company would suffer a great loss should they lose this asset. This insurance is usually paid for by the employer however the employee in many cases has to pass underwriting requirements which often include drug screening, medical exams, or psychological testing.

These kinds of insurance products and policies may be the only insurance required but, as we go through life and build our assets we need to consider other important things. Generally, as families build assets they also face more exposure to risks and liabilities as we build assets we also build liabilities the more we have the more we have to lose. This is where insurance can often get tricky for some of us.

For a long period of our lives we live with the required insurance being a pain and hopefully not much of a value. It can be difficult to recognize the role insurance might play in the event of a personal disaster. What was once a legal or financial requirement and something we complained about becomes an intricate part of financial planning as we balance sending children to college and planning for our retirements.

So how much insurance do we need and when do we need to get it? That is the topic of the next few Blogs. A Review of Insurance Needs for a variety of situations starting with the average College Graduate twenty-something just starting out. Follow this series as we look at several examples of where and how insurance had or would have made a major difference.

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Glossary of Insurance Terms:

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