The Boy Scout motto is overused, but I'll use it anyway because it is so apt: Be prepared.
Bad things happen to good finances all the time, and the only way to protect yourself and your family is to protect your financial assets from being wiped out by a catastrophe. That means insurance in some form: life, health, auto, home, annuities, just to name a few major types of policies.
For a relatively small fee--the annual premium--an insurer agrees to shoulder a substantially larger risk than you can afford, promising to step in and cover the costs of certain events that otherwise threaten to destroy your finances.
Do you have enough cash on hand to pay a judgment against you should your car happen to be involved in an accident that kills or maims someone? If not, you need auto insurance and maybe a so-called umbrella policy.
Do you have the cash available to rebuild your house if a disaster destroys it tomorrow? If not, you need a homeowner's policy.
Do you have enough money to guarantee your ability to live in retirement for as many as thirty or forty years (and remember, centenarians are on of the fastest-growing demographics in America)?
If not, you might consider annuities and long-term care policies that guarantee an income and cash for extended care for as long as you continue to breathe, no matter how long that is.
Insurance for many people is a necessary evil, a hassle that requires the payment of a bunch of money for a service few expect to use. But that's a misguided way to consider insurance. No one ever complains about their taxes' paying the salaries of firefighters and policemen because everyone knows that in an emergency you want those first responders available to help protect your life. Insurance is identical. It's the first responder of the financial world, there to protect your assets.
Some forms of insurance are mandatory, such as a homeowner's policy that a lender will require if you buy your house using a mortgage. Other forms aren't mandatory but are clearly a necessity, such as life insurance once you have a family.
And still other forms of insurance are neither mandatory nor necessary, but they're nevertheless an excellent way to protect your future, such as an annuity that can ease the financial worries you might harbor about old age and the possibility that you may run out of cash one day.
The problem with insurance of any kind is that figuring out exactly how much coverage you need and what deductibles are right for you can be numbingly complex, or just numbing. Buy too little coverage, and the risks that you and your family are exposed to still threaten your assets.
Buy too much and you're just wasting money on the premiums. Agree to the various policy riders that insurers pitch and you can find out after the fact that the rider did little to benefit you. But skipping every rider means missing out on some benefits that can make a policy markedly more useful.