You’re jumping out of an airplane from 10,000 feet. Do you need a parachute?

Of course.

You’re jumping off a 2-foot ledge. Do you need a parachute?

Of course not. Your body is already built for such impacts.

Insurance works the same way. Some jumps are so high – and potentially devastating – that insurance provides a true de-risking. Other jumps are so shallow that we can “insure” them using our emergency fund and monthly cash flow.

If you’re unsure if you need insurance, ask yourself how high the jump is. And, potentially, how devastating the impact.

Health insurance is helpful, at least in the USA, because healthcare costs can be devastatingly high. Life insurance is similar, as your family likely significantly relies on your income.

But do I need to insure my new wristwatch, just because Amazon suggests I do? No! Replacing a $40 watch is tiny jump.

I’m short on time this week (honeymoon!) but wanted to propose this quick idea. Insurance is only a requirement when you can’t cover the potential expenses (the “impact” of the fall) yourself.

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