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All choices involve risk. For example, driving a car involves risk of an accident. You can reduce that risk by limiting the amount of time you drive your car, walking, or by taking public transportation. Or, you might take a defensive driving course to enhance your chances of avoiding accidents caused by somebody else’s mistakes.
Similarly, insurance is about reducing financial risk. Auto insurance won’t reduce your chances of being involved in an accident, but it can help protect you from financial loss due to the car repairs, medical costs, or lawsuits that result from an accident. Buying health insurance reduces the risk that medical bills from a serious injury might wipe out your savings or perhaps push you into deep debt. Homeowners insurance won’t prevent a fire, but it can perhaps mean you will likely be able to afford a new place to live if your home burns down. Life insurance can go a long way to ensure that your family and loved ones will be taken care of in the event of your death.
Protecting yourself against sudden financial catastrophe is as much a part of good money management as paying your bills and accumulating wealth. The resources on this page can help protect yourself against the financial impact of events such as illness or accidents that you can’t control.