We all face risk – the possibility of injury, illness, death, or property destruction–each day. Although you can never eliminate risk, you can guard against financial loss by shifting part of your financial risk to a larger entity, your insurance company, that’s in the business of dealing with that risk. You don’t have to bear the risk of financial loss alone. Insurance is all about risk and financial protection. In return for your payment of premiums, your insurance company agrees to pay you a certain amount of money for a specified loss.

Insurance coverage can protect you, your business, and/or your loved ones from the financial loss associated with your risks. There are many different types of insurance to consider. These include life, medical, disability, auto, and homeowners, to name just a few. Most types of insurance are optional, but some–like auto insurance–may be required by your state or lender. Insurance can sometimes seem counter-productive, especially if you’re paying premiums year after year and never making a claim. As with any investment, choosing the right level of insurance cover can be a balancing act.

The Home

The family home is the largest investment most people make. Depending on your level of cover, home and contents insurance can fully repair or replace your house, as well as everything inside it, if damaged by fire, storms or theft. Remember that any claim you make will be affected if you don’t properly value your assets or if you underestimate any risks. Take the time to work out if you want to pay for total replacement insurance cover or ‘sum-insured cover’. Total replacement includes all costs to re-build your home to the standard it was, while sum-insured cover pays out a pre-determined amount.

The Car

It covers personal injury claims made against you by other drivers, passengers, pedestrians, cyclists, motorcyclists and pillion passengers involved in an accident. You may choose to add comprehensive cover if a car is your primary vehicle and its damage or loss would affect your ability to work or care for your family.

Life

The same level of focus is required on your ability to earn an income. People frequently underestimate the disastrous effects on financial well-being should they become ill, suffer an injury or die unexpectedly. Life insurance, and death and disability insurance are optional, but many superannuation funds include both as a default, or offer them as add-ons. If you’re the sole breadwinner, this cover can help to pay off a mortgage or other debts.

Insurance policies vary in what they cover, so read them carefully and shop around. Explore your insurance options and try to quantify your potential losses. But because an insurance-needs analysis can be pretty complicated, it may be best to sit down with an insurance professional to figure out what types of insurance policies you should buy and how much coverage you actually need.