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Monday, June 18, 2007

Insurance: Is it REALLY Worth It? - Factors to Weigh

In examining several types of insurance, I have come up with seven basic factors to consider in determining if a particular type of insurance is REALLY worth it. This list could probably be lengthened, but these are the factors which will be considered in my posts about whether a particular kind of insurance is REALLY worth it.

#1 - Cost of Premiums
First, the cost of the premiums should be added up over a period of time. Looking at the monthly premium isn't a very good way of considering the cost of insurance. Add these premiums up over at least a year, or if possible, over the lifespan of the insurance policy.

#2 - Cost of Premiums + Deductible In a Claim

In considering the cost of insurance, one also has to consider how much they will have to pay in the deductible if they have to use the insurance. This is especially important in making a comparison to self-insurance or expenses without insurance.

#3 - Expenses in a Claim Without Insurance
In the event that you have to make a claim, how much would this claim cost if you didn't have insurance? Without considering this cost, you really can't consider if insurance is worth it. In some types of insurance several different types of claims will have to be considered.

#4 - Ability to Pay Without Insurance
If you don't have insurance, based upon your level of income and savings, would you be able to pay for the claim without insurance?

#5 - Ability to Self-Insure
Based upon the costs above, if the money is invested at a moderate rate with high liquidity (5% for my examples), would you be able to provide this insurance for yourself? That is, can you invest the premiums instead of paying them, and then pay out of the account in the event of a claim? How much less protection does this provide?

#6 - Return in Payment vs. Premiums Paid In
In the event of a claim, how much will you receive in returns from the insurance company in comparison to the premiums you have paid in. Is this difference really worth the risk that you will never make a claim?

#7 - Other Considerations
Other considerations may include the stress with or without insurance, your past history or family's history in this area, and many other factors unique to the type of insurance.

These factors will be considered now in several different types of insurance.