When Do You Need to Buy Insurance?

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There are many different types of insurance products that can help you reduce the risk of financial loss in your business and personal activities. Here’s how to decide when you should buy insurance.

How big is the potential loss?

Just about every homeowner will buy home insurance because they either can’t afford to or wouldn’t want to pay to rebuild their home if something happened. At the other extreme, you probably wouldn’t insure a sandwich even if the office fridge thief kept stealing your lunch.

A general rule of thumb is to buy insurance when you don’t feel comfortable paying for the possible loss out of your savings account or business cash reserves.

What’s the risk of loss?

The more likely a disaster is to happen, the more beneficial insurance can be. For example, even if you could theoretically pay to replace your car if necessary, the daily chances of you getting into an accident are probably high enough that you’d rather have insurance.

The risk of loss goes together with the size of the loss. You may not be able to afford to take even a small chance with something like your home. At the same time, many people skip cellphone insurance even though there’s a high risk of them damaging their phone.

Do you have to buy insurance?

In some cases, you may have a legal or contractual insurance requirement. Don’t just automatically buy the minimum amount to save money. There may be a good reason you’re being asked to buy coverage, so take the time to figure out what coverage is right for you.

Do you already have insurance coverage?

Many people don’t realize the full benefits of their current insurance coverage. You may have bought homeowner insurance to protect yourself from fires without thinking about what the included personal liability protection does for you.

At the same time, don’t assume your existing coverage covers everything. For example, home insurance may not cover your business activities even when you’re operating a small business from home. Personal car insurance also typically excludes gig activities unless you buy special coverage.

Do you have other types of coverage?

You may have other protections available beyond insurance. For example, malpractice reform in some states protects doctors from certain types of malpractice claims.

If you have a corporation or LLC for your business, you could have some personal liability protection. However, you should be aware of the limits of non-insurance protections.

What are the different types of insurance coverage?

There are many different types of insurance coverage.

  • Auto insurance
  • Home insurance
  • Renter’s insurance
  • Small business insurance
  • Commercial general liability insurance
  • Commercial auto insurance
  • Professional liability insurance
  • Flood insurance
  • Health insurance
  • Worker’s compensation
  • Disability insurance
  • Life insurance (coverage options include term life insurance and whole life insurance)

Where should you get insurance?

One option is to buy insurance directly from an insurance company. They may be able to help you determine the coverage you need. However, you should be sure to get the exact details of the policy as the marketing materials often only provide a brief summary of the coverage and exclusions. One popular small business insurance company is Hiscox.

Another option is an independent insurance agent. Independent insurance agents work with multiple insurance companies so they can help you find the right coverage and price. They also rely heavily on customer satisfaction, so you may have less concern with being oversold than if you work directly with an insurance company.

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