Should You Buy Insurance?

by Tax Guy - Burlington Accountant on June 17, 2008 Print This Post Print This Post

Yesterday I wrote about the emergency fund as a self funded insurance policy that is intended to cover the risk of a short term cash crisis or temporary loss of employment.  However, for many people self funded insurance is not reasonable in all circumstances and it necessary to use the services of an insurance company.  There are many different types of insurance in the market that is designed to cover different types of risks.  But how do you decide what to insure?

When evaluating whether you need to have insurance you need to consider whether you can afford to assume the risk and insure the risk you cannot afford.  Phillip Brewer of Wise Bread believes that there is no reason to insure predictable even if large.  You would not buy an insurance policy to cover your car wearing out but you would buy coverage in case you had an accident.  Thus you should budget for the large, predictable expenses (a replacement car, annual property taxes, etc.) and insure those expenses that have a probability of occurring or not and that you can’t afford to cover if they did occur.

What Should Be Insured?

Depending on your level of income, there is really no limit to what you can self insure.  If you are considering self insuring you should understand the probability of the event occurring (risk) and whether you could afford if it did occur.

Needless to say most of us should all have house insurance, car insurance, life insurance, disability insurance, and health insurance.


About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 1 comment }

Tips to Save Money & Build Wealth August 28, 2008 at 9:10 am

Insurance is one, often overlooked piece of the financial planning pie. We do not seem to want to face our own mortality or come to terms with the fact that something may happen that will cause us financial hardship. We seem to buy house and car insurance because we have to but life and critical illness is another story. The chances of death are 1 in 1, its only a matter of when.

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