| One of the main principles of financial | | | | Auto/ Vehicle insurance: Auto insurance is |
| management is prudence. The concept of | | | | mandatory for the third-party coverage it offers. |
| prudence - in this context - refers to having a | | | | However, not every aspect of auto insurance is |
| long term view and displaying sufficient financial | | | | prudent. For example, fully comprehensive |
| acumen. As a risk-management tool, the concept | | | | coverage on a second-hand vehicle may be |
| of insurance is premised on financial prudence- | | | | unwise in a few cases. Reducing the potential size |
| protecting your assets, life and health. | | | | of 'excess insurance' is also prudent when you can |
| Risk management - which is based on prudence - | | | | bear the potential loss comfortably and can save |
| offers a few options. When you are faced with a | | | | money through lower premiums. |
| risk, you can avoid, control, transfer or accept | | | | Health insurance: This type of insurance is usually |
| that risk. Once you can avoid, control or accept a | | | | prudent once you're alive. Naturally, all health plans |
| risk, insurance may not be necessary or prudent. | | | | are not the same. It is not shrewd to have |
| If you can only control an insurable risk to a | | | | medical coverage for routine medical expenses. |
| limited extent or cannot bear the potential losses, | | | | This only increases your premium, since an |
| then it will be prudent to transfer the risk to an | | | | additional burden is placed on the insurer. |
| insurer. How you perceive a risk is often | | | | However, health insurance is the most vital form |
| dependent on your risk tolerance (subjective) and | | | | of optional insurance to have. |
| your financial circumstances (objective). Prudence | | | | Home & property: Buildings are usually |
| is a function of your judgement in some cases. | | | | capital-intensive investments that would result in |
| Naturally, some forms of insurance may be more | | | | substantial financial losses through damage and |
| 'prudent' than others in certain circumstances. | | | | destruction. It is also important to have coverage |
| Indeed, there's more to acquiring insurance for a | | | | for properties because it can extend to third |
| risk than simply having that risk. Risks can vary | | | | parties. The capital-intensive nature of these |
| by severity. For this reason, travel insurance and | | | | assets make it wise to have sufficient home or |
| medical coverage for minor medical expenses are | | | | property insurance. |
| hardly ever considered prudent. | | | | Insurance is always a balance between the value |
| There are also different types of insurance that | | | | of the protection and the premium. If the |
| are designed to protect what you value most. | | | | premium is too high in relation to the coverage, it |
| When insurance is prudent also depends on what | | | | indicates that the risk is deemed too large for an |
| you're protecting. | | | | insurer to undertake at a level that is affordable |
| Life insurance: For certain, your life is valuable. | | | | to the insured. |
| However, that hardly suggests that a million | | | | Life involves uncertainty. One can do certain |
| dollars of coverage on a life insurance plan is | | | | things to reduce risks, if not eliminate them. |
| prudent for you. Life insurance is most relevant | | | | Insurance is prudent when it is used as a |
| when you need it for family protection, business, | | | | risk-transfer mechanism. In other words, it is |
| mortgage protection, estate planning or as part of | | | | prudent when a substantial, insurable risk cannot |
| a complete financial plan. If you want 'returns' | | | | be avoided or accepted. Therefore, it is |
| from it, or match it according to replacement | | | | sometimes wise to take advantage of insurance |
| income instead of expenses, it often becomes | | | | beyond the fact that it is necessary. |
| superfluous. | | | | |