Wise consumers know that protecting what they own is smart in order to prevent a financial loss. Whether or not it is a wise decision to choose optional insurance is based on several factors.
Most major purchase loans either require insurance or at least give the option to purchase insurance as a means of protection. The rule of thumb is that if a purchase is a large amount (one in which that a financial loss could not be covered with cash on hand), then insurance should be considered. For the purchase of a house or automobile, insurance is required by the lender in order for them to protect their investment as well. However, less expensive items that are financed are subject to debate on whether or not they are good candidates for insurance coverage.
The first question to ask should be directed at the potential loss of the item in question. If the financial impact incurred by the loss of the item exceeds the ability to pay out of pocket for its replacement, then insurance should be considered. In addition, if one owns items of great sentimental, artistic or historic value, then insurance should be considered. If an item is purchased for the express purpose of preserving life, health and/or safety then insurance also would be a wise choice.
Some insurance is not worth the cost given the nature of the item. Often, you will find yourself being offered insurance on a piece of electronic equipment like a television. The insurance providers make a bundle on this type of insurance. Most consumer electronics are designed to rigorous quality standards such that if you have issues with the equipment, it would probably show up within the manufacturer`s warranty period which is normally one year. If the loss of the item in question is only several hundred dollars, then insurance would be considered a waste of money. Generally, entertainment items are not considered worthy of insuring unless they are part of maintaining the livelihood of the owner.
The case in which the above could be discounted has to do with the total cost of the insurance. A small amount under five percent of the cost of the item might render it a good candidate to be insured. Especially if you can pay cash for that insurance and avoid rolling it into a monthly payment.
Insuring simply for convenience sake is not wise. Sometimes the loss underscores the importance of taking care of one`s property and is best left to the experience of the owner. This might be the case in the course of family life where parents are attempting to school their children on the value of items and their ultimate care.
Whatever choices are made regarding insuring items which are under a loan agreement one must carefully weigh the risk and then make the wise choice.