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.
- Wise Bread – Things to insure, things to not insure 
- The Simple Dollar – Do I Need Disability Insurance?