Doing it yourself

Insurance

The guiding principle for insurance is to use it only when a loss would be financially intolerable.

You pay for insurance when:

• It is legally required (e.g. liability insurance for a vehicle)
• It is contractually required (e.g. your mortgage lender insists you have fire insurance)
• A loss would cause serious financial hardship to your family (e.g. a paid for house burns down and you cannot afford to rebuild out of other resources; your family depends on your earnings from a job or business, and you are unable to work because of death or disability)

You do not pay for insurance when:

• A loss is immaterial to your wellbeing (e.g. an extended warranty on a $300 television is a waste of money)
• No third party can be harmed by an event (e.g. life insurance for a person with no dependents)
• A loss cannot be compensated with money (e.g. life insurance on a child)
• The risk is not really avoidable (e.g. segregated funds guarantee a minimum market value, but if the market really goes into the tank, are the insurance company's finances robust enough to make good?)
• The all-in cost is similar to the loss you're trying to avoid (e.g. paying fat fees to life insurers to avoid paying fat taxes at death, but your children will end up with the same amount in either case)

No matter what, do not let a salesperson make you feel guilty about a non-existent or trivial risk. Never buy insurance for emotional reasons.