Define Insurance Need
There really are three areas for consideration when defining insurance need. First an individual needs to accept what legal limits exist, what risk someone can afford and finally what risk would bring unbearable hardship. With these factors defined, an individual can make realistic expectations of insurance need.
Legal Limits
Most states have legal rules such as liability insurance for a car and lenders insist on insurance for automobiles and homes under finance agreements. These might be minimal and you should consider added coverage to reduce other out of pocket expenses. This is when you look at the risk factors involved in insurance.
Affordable Risk
Insurance provides the means to manage risk. Insurance covers what we hope does not happen. In general, this does not include health insurance because maintaining health is not a risk but a necessity, but some of the questions can help define the amount of personal expense one is willing to risk for health insurance.
You need to answer a few questions and determine the likelihood of something happening. If the likelihood is that it will not happen and if it occurred you could afford to finance the consequence fully on your own than this is not a need for insurance. An example if you do not live near a body of water, a flood most likely would not occur for you so flood insurance probably would be excessive. Do you have financial resources that could pick up a portion of the cost of a risk? The answer to this question would help assess the level of deductible that you could afford.
The answer to how much expense you can handle for yourself could help determine the best health insurance company for you. It would help you examine formularies and determine what level of medication cost falls within the monthly budget. These formularies vary from each insurance company. There can be large difference in the copayments for many drugs. If taking drugs regularly you need to know which ones they are and where they sit in each insurance company’s formulary.
In addition, you need to examine whether the out of pocket expense would hamper your lifestyle. There are companies such as AFLAC that help provide assistance with the other expenses such as travel, hotel for caregivers, or time off from work. If these items are within your budget maybe this is not a desired insurance, but if something happening will prevent you from having a support team with you, ability to pay household expense while not working or some other expense it could prove worthwhile. You need to determine how much hardship you can afford.
Hardship
Insurance covers risk that the circumstances are beyond what we could stand. If we had a fire, we could not replace our belonging, or the health costs would bankrupt the family, replacement of automobiles involved in an accident or that the loss of income of the breadwinner of the family would impoverish the family, insurance becomes a necessity. Someone needs to define when a hardship would be irreparable without an insurance payment.
Insurance is a safety net. We need to understand fully when we need a net.