Step 4 of 7
When to insure, and when not to
Planners sort every risk by two questions: how often could it happen, and how much would it cost you?
Happens often
- Small cost
- Pay it yourself. A broken phone screen, a cold, a minor car scratch. Use your budget or emergency fund.
- Big cost
- Reduce it, then keep it. Frequent costly risks are expensive to insure. Prevent them: drive safely, stay healthy and maintain your home.
Happens rarely
- Small cost
- Pay it yourself. Lost earphones, a small appliance repair. Not worth a premium.
- Big cost
- Insure it. A long hospital stay, a serious illness, death of a breadwinner or a house fire. This is what insurance is for.
| Small cost | Big cost | |
|---|---|---|
| Happens often | Pay it yourself. A broken phone screen, a cold, a minor car scratch. Use your budget or emergency fund. | Reduce it, then keep it. Frequent costly risks are expensive to insure. Prevent them: drive safely, stay healthy and maintain your home. |
| Happens rarely | Pay it yourself. Lost earphones, a small appliance repair. Not worth a premium. | Insure it. A long hospital stay, a serious illness, death of a breadwinner or a house fire. This is what insurance is for. |
Policy words to know
- Deductible
- What you pay first before the insurer pays
- Co-insurance or co-pay
- The share of each bill you still pay after the deductible
- Exclusions
- What the policy won't cover, like some pre-existing conditions
- Waiting period
- How long after you buy before certain benefits apply
- Limits
- The most the insurer will pay, per year or per illness
Judging an insurer? Look at its financial strength, how promptly and fairly it pays claims, its service, and only then the price.