Even if you know exactly how much insurance you want or need, there’s another crucial element in this process. You have to find an insurance company that will provide the coverage you want at the best price. An insurance agent can be invaluable in helping find the right company. ∗ Note. There are thousands of insurance companies in this country that sell auto, homeowners and other coverages individuals need. No two companies offer all of the exact same policies. Some companies want only certain types of drivers or homeowners. Some offer higher limits. Some offer what might be described as bare-bones coverage. ∗ Note. There are at least six different coverages that are part of auto insurance! ∗ Note. Homeowners insurance policies have limits on what they will cover in terms of possessions, particularly jewelry, fine art and computer equipment. Many insurers offer substantial discounts (10%, even 20%) if you have both your auto and homeowners policies with them. Does the insurance company offer so-called umbrella policies, which provide additional liability coverage over the limits of your homeowners and auto policies? Do you even need an umbrella policy? How do you find what’s best for you? You could shop on the Internet for insurance. There are numerous sites that have price quotes for auto, homeowners and life insurance policies. But what coverage is available under these policies? And how can you be sure that you’re buying enough coverage?
You could look in the telephone book and find dozens of companies that sell auto, homeowners and life insurance policies. You can call each of these companies and talk to one of their employees. But does this person know your insurance needs? Can he or she assess how risk-averse you are based on a fairly short phone conversation? Does this person even have a license to sell insurance? And how can this person work for you when he or she is working for the company? Can you imagine a sales representative saying to you, “Frankly, I don’t think we have the kind of coverage you need?” You could call an insurance agent who represents one insurance company. These companies -- State Farm, GEICO, USAA, Farmers, the Auto Club, etc. -- are fine, financially sound insurers, but what if they don’t have the coverage you need at the price you want to pay? The agent doesn’t have any options for you. He or she represents just that one company.
While it’s one thing to have insurance for specific risks, it’s quite another matter to have enough insurance. How much is enough? The answer is different for everybody. It depends on what you want to protect and how much risk you’re willing to assume yourself. Let’s say you have a net worth of $1 million. (Congratulations, by the way.) That’s the total value of your various possessions: home(s), car(s), furniture, art, stock and bond holdings, mutual funds, etc. One million dollars is also how much you have to lose. ∗ Imagine this. Say that famous person you hit in the intersection sues you for loss of income, pain and suffering, etc. Basically, the most this person can get from you is . . . $1 million. Let’s say your current auto insurance policy has a limit of liability that will pay a maximum of $100,000 to any one person involved in an accident with you. (That’s a pretty common limit, by the way, although not for people with seven-figure net worths.) If you’re sued for $1 million, your auto insurance will pay a maximum of $100,000, which leaves you holding the bag for $900,000.
Ideally, your liability insurance limits should come close to matching your net worth. After all, someone can’t sue for something you don’t have. You may be willing to assume some risk here, believing that you’re very, very unlikely to ever be sued for anywhere near your net worth. ∗ Tip. Remember that your net worth is basically a target for attorneys representing someone who has suffered injuries, lost wages, and had pain and suffering as a result of something you did. In addition, it can cost only a few hundred dollars more a year to have a liability limit of $1 million as opposed to $100,000. In deciding how much insurance to buy, you must consider what you have and what it costs to provide the level of coverage you’re comfortable with.
Keep in mind that most people who have significant assets and decent incomes can afford to purchase liability limits high enough to equal their net worth. Whether they choose to is another matter.
How do you know if you have enough insurance? Sure, there are certain risks you’re willing to assume -- earthquake might be one, landslide another -- but how can you be sure that you’re not facing risks you don’t want to assume? You talk to a professional, someone who understands risk and can assess your willingness to assume it. Someone who can tell you whether you have enough insurance, based on your aversion to risk, or too much. You talk to an insurance agent, someone who understands what coverage is out there and what is right for you. You talk to an insurance agent who has expertise in the specific coverages you need and the risks you face. ∗ Tip. Just like you don’t go to a foot doctor for a severe headache, you don’t go to an agent who doesn’t specialize in the coverages you need -- homeowners, auto, 
umbrella, disability, life and long-term care. This guide will explain each of these types of insurance in detail, what they cover, what they don’t cover, who they are appropriate for, etc. But before determining if you need these coverages -- some, like homeowners and auto, are often required -- you must understand what you have to lose and what risks you are willing to accept. However, before you can do this, you need to be aware of every -- every! -- risk you face. OK, maybe not every risk, but certainly every risk that has even a remote chance of occurring. Your current insurance provides coverage for many risks, but not all of them. Do you know what you don’t have coverage for? An insurance agent can tell you.
Let’s talk about your real life now. Yours and your family’s...and the “other kind” of gambling that people do. This other kind of gambling is more than just about “How much?” It’s also about “What if?” “What if?” is a game that involves imagining worst-case scenarios. Hardly a pleasant thought, but how can you know what you’re gambling if you don’t consider all the risks? Could something happen today that would cause you to lose your house? Maybe. It happens to people every day. Could something happen tomorrow that would rob you of your ability to make a living? Possibly. It happens to people every day. For some of our readers, the answers to the two previous questions are either “No” or “Almost certainly not.” But how do you know? Let’s play “What if?” This could happen...You’re driving your car. You lose your concentration on the road and go through an intersection, not seeing that the light has turned red. Could happen to anybody. Unfortunately, as you go through the intersection, you encounter another car that is proceeding across your path because the light for this vehicle is green. You broadside the other car. Later, you find out that the driver or a passenger (it doesn’t matter which) is a famous person who has been seriously hurt. This famous person makes millions and millions of dollars a year, and because of this accident, this person will not be able to earn that living, at least for a while.
This person has suffered an economic loss and also probably will endure pain and suffering because of his or her injuries, the recovery period and the inability to work. So this person sues you. How much can he or she get from you? Everything you have. This could happen...Look at this example another way. Say you are the one hit by something proceeding through a red light. Say you are unable to work for months, even years. What kind of a hardship would this cause you and your family? What could you lose? For some, the unfortunate answer is . . . Everything you have. Do you like to gamble?
Insurance
Do you like to gamble? No, not on the ponies, at the craps table or with your friends at the weekly poker game. Do you like to gamble with your future? Risk your most prized possessions? Your home or homes? Your car or cars? The financial well being of yourself and your family? No, of course you don’t. But . . . how do you know, truly know, you aren’t? Let’s go back to “regular” gambling for a moment. At that weekly poker game, you have a pretty good idea what you have to lose. The money in your pocket, mainly. Maybe a friend will float you a loan if you’re broke and want to keep playing. But it’s nickel-ante, for crying out loud! How much could you lose? And that time you went to Vegas. You budgeted $500 for gambling. You hoped you’d come home in the black, but you were prepared for the alternative. After all, those giant casinos weren’t built on the winnings of people like you. “Regular” gambling -- you have a handle on that. The risks. The potential rewards. But what about that other kind of gambling? Losing your house? All of your assets? Everything you’ve worked for all these years? What about that? With “regular” gambling, you probably played a mental game that could be called “How much?” How much can I afford to lose tonight, this weekend, whenever? You were comfortable with that. Maybe your answer changed in the process and maybe your losses were a bit more than you were initially willing to accept, but you survived the experience and probably learned from it.
