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times I’ve sat across the table from a client who told me that he didn’t want insurance, and didn’t want to have to pay for it, because it was something he would never use.

True, many people buy insurance and then never use it. But, do you drive your car without insurance? Or have you canceled your homeowner’s insurance policy? I’m willing to bet you haven’t canceled them, nor would you even think about it. But, when was the last time you used either of those policies? If the answer to that ques- tion is “not very recently” or “never,” would you consider dropping your coverage because of that? Again, I’m going to say that you wouldn’t.

Insurance involves a transfer of risk. By purchasing life insur- ance, for example, you are acknowledging that you have a financial interest in your life, and therefore you face a risk if something were to happen. With risk you have the option to do one of the following: Avoid it, prevent or control it, assume it, or transfer it. By avoiding risk, you simply don’t engage in an activity that you think could cause harm. For instance, if you are afraid that you could get into an automobile accident and be sued, you could avoid driving. That sounds a bit extreme, and certainly avoiding certain risks could cause a bigger inconvenience than not avoiding that risk. However, if the cost of avoidance is less than handling the risk in another way, then that may be the most attractive way to go.

Preventing or controlling the risk is another, simpler way to min- imize the risk and associated potential loss. Taking our previous example, preventing the risk of getting into an automobile accident would be to take a defensive driving course and being a cautious driver. Controlling the risk, or minimizing the effects of a loss, would be to have a car with air bags and wear your seatbelt.

When you assume the risk, you are signifying that should any- thing happen, you are fully ready and financially capable of handling any such loss. Therefore, you bear the responsibility of whatever may happen, no matter what the cost. So, you get into an accident and are sued. Since you have decided to assume the risk and have no insur- ance, you carry all the obligations that go along with the accident and lawsuit process. Not many people can afford to assume the risk, nor

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