How insurance can help you

reasons why people buy insurance

Most people buy insurance for four main reasons:

  • high value to protect something they have bought that is of high value (like a house, a car, or maybe jewelry or a painting) and would be expensive to replace. a loan has often been taken to buy the items
  • catastrophe to protect your property and possessions against a disaster, such as a fire, flood, cyclone or other calamity
  • a specific event to protect them when they are doing something that is not covered by their normal insurance policies, such as traveling abroad
  • responsibility to provide financial protection if sued; for example, if a visitor should sue you for negligence after being injured on your property
  • protect what is important

    Reading: How can insurance protect you from financial loss

    When you buy an insurance policy, you should give some thought to what is important to you and how much you are willing to set aside to protect those things if you are faced with your loss.

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    Most people are willing to pay an insurance premium to protect things like their home and its contents, their car, boat or caravan. Business owners will also typically take out insurance coverage to protect assets and inventory, and to provide financial help if they run into legal trouble.

    Choosing an insurance policy is a matter of identifying what’s important to you.

    Some forms of insurance are required. For example, state and territory governments require car owners to purchase mandatory auto accident personal injury insurance when they register their cars to protect anyone they may injure while driving. Business owners have to pay premiums into their state or territory workers’ compensation plan for their employees. and homeowners who take out a mortgage loan with less than a 20 percent deposit may be required by their lender to purchase lenders’ mortgage insurance.

    what can you protect?

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    You should consider umbrella insurance when the cost of a particular financial risk is much greater than the cost of protecting yourself against that risk.

    A risk must be valued in monetary terms to be included in an insurance policy. it must also be an uncertain risk, something we can’t be sure will happen.

    You must also have a direct interest in any loss against which you are insured. you can’t take out home and contents insurance on your neighbor’s house, for example.

    Almost anything of value can be insured, but in practice, most insured items share the following characteristics:

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    • the loss or damage has a reasonable dollar value
    • the covered risk could occur among a large number of people (such as theft, fire, car accident)
    • the premium is profitable

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