Insurance is about compensation not enrichment. It is not a lotto ticket for a windfall should an insurable event happen. The policy owner should not be in a financially better situation after the event. What insurance should be about is compensating for a likely loss suffered if a condition arises.

So here are 3 tips to deciding how much insurance you need:

1 If the unexpected happened to me right now, in what financial position would those I care about be left? Are they left struggling?

2 How would my income come be replaced if I couldn’t work? What income do I need and how soon would the financial pressure ratchet up?

3 When I need non acute medical attention am I prepared to run the risk and wait for the public health system to meet my needs even though I know how long the waiting lists are or can I meet the medical costs myself?

The three principle of risk management are:

1 Don’t risk more than you can afford to loose

2 Don’t risk a lot for a little

3 Consider the odds

When you put these together you will end up with a sensible risk plan.

All too often I see insurance plans that have not thought through as to what the loss is that should be insured against. When this becomes the question, if insurance is the answer, the need is no longer a nice to have but a necessity.