WHAT RISKS TO INSURE AGAINST AND FOR HOW MUCH

All risks should not be insured against; it would be too costly. The risks that could potentially destroy your net worth are the ones to consider first.* It's not how often something occurs that one needs to be concerned about (for instance fender-benders to the automobile) but how large the damage couldconceivably be (million dollar suit for personal injury payable to the other driver involved in the fender-bender).

A rule of thumb in determining whether to insure or retain the responsibility for paying potential losses in a given area, is to check out the relationship the potential claim bears to your family's current net worth. This would of course change over time. The larger your estate becomes the more important it is to have adequate liability coverage. Courts frequently award million dollar damages to plaintiffs nowadays.People with limited incomes must choose their insurance wisely in order to cover the premiums (cost of coverage).

For example, they may not be able to afford insurance on their house, the other fellow's automobile as well as their own and have complete health care coverage also. Since very often such a family's net worth is attributable mainly to their home, they dare not skimp on fire coverage so they may choose to absorb some medical expenses or damages to their own automobile. However, they should always make sure damage to the other fellow's car will be adequately covered so his attorney will not come against their home and other assets.

Risk can be handled by acceptance (use when either threatened damages or likelihood of occurrence is slight), avoidance (refrain form certain actions or control over certain things), reduction (cultivate careful habits), or transference (the insurance company assumes your liability for a price). It's your responsibility to analyze your priorities and determine the coverage you need and can afford.

It is foolish to leave thesedecisions entirely to your agent's discretion. Insure against losses that could wipe out your net worth rather than against those events that occur frequently but whose cost you can absorb without risking everything. Your net worth consists of your assets, everything you own-- minus your liabilities which is all your debt.

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