Over the past few days I’ve been posting snippets of insights to help you get started on your journey towards financial wellness. It is definitely a journey over a lifetime that involves managing risks. Risks, or uncertainties, are exactly that – they are not fully known or guaranteed to happen. If and when they do happen, they can cause tremendous stress and chaos in our lives.
One of the ways to plan and manage the potential for risks is through insurance protection. The basic purpose of insurance is to share the financial burden of a potential loss among a large group of similar individuals. The cost of insurance is based on many factors to determine the likelihood of any one in the group to have a loss. It is a way to manage risk and hedge against a large financial liability – which means you are responsible for it.
It is not an investment or savings account. You do not get your money back in the event that you never have a claim, although you may receive discounts based on your claim history. You are basically transferring the financial responsibility from yourself to the insurance company in exchange for a monthly/annual premium. It is important to choose insurance companies that are financially stable and will have the ability to pay claims, even in the event of a catastrophe. Insurance companies are rated by Standard & Poors, A.M. Best and Moody’s.
Insurance rates are adjusted annually based on the companies actual claims as compared to what they had estimated. Your individual rates will change as well, based on your age, your marital status, your place of residence, your financial responsibility and the group you are in. It is prudent to review and compare your insurance plans once a year, usually around the same time you do your taxes. Different companies target different groups, so depending on your unique situation, one company may be a better fit than another at the moment.
Over the next few days I’ll be writing more about different risk management strategies and important things to consider as you plan for the financial uncertainties in your journey. Let me know if you have any specific questions and I’ll be sure to cover it.
May your journey towards financial wellness be an adventure – plan well, so you can enjoy it to the fullest.