Insurance can be a very expensive product. When the premium bill comes, it is easy to get into "that won't happen to me" mode and not adequately insure. But a little cost benefit analysis can help you make a rational choice as to what types of coverage you need and what the amounts of those coverages should be.

Liability coverage is both the easiest and hardest coverage to gage. Why? Because what it might have to cover is always unknown. Good liability coverage will pay for whatever injury to other persons and damage to the property of others a court may find you responsible to pay for, AND a good liability policy should also provide for the payment of your legal costs in defending against a claim. The latter can be a significant amount if you become involved in a personal injury or significant property damage claim, even if you are ultimately found not to be liable for damages, and is an important part of any liability coverage policy. It is not unusual for personal injury and wrongful death judgements to exceed $1 million, so this is not coverage to be taken lightly. Liability coverage is often attached to property insurance for assets used in the underlying activity. For instance, your auto policy should provide liability coverage for damage and injury that happens while you are driving your vehicles, and your home owner's or renters policy should provide liability coverage for injuries incurred by others on your residential property. Homeowners policies may or may not cover injury or damages caused by your hobby horses, so be sure to get specific information on this from your insurer, even if you keep your horses at home. If damage done by your horses is not covered, talk to an equine insurer about additional specific coverage. Commercial liability policies cover damage and injury which arises in the course of your business and should be tailored to the nature of your business. The easy part of the liability insurance decision is that everyone needs coverage for the activities in which they are involved. The hard part is how much. It is impossible to predict what might happen to someone else or their property or how great the damage might be. This said, remember that should a judgement against you exceed the amount of your liability insurance coverage, the difference comes out of your personal assets. Make sure you have coverage adequate to protect your assets in case of a large judgement against you. The more you have at stake, the more coverage you should consider.

Property coverage is a little easier to figure. The goal is to repair or replace the covered property. If is something you cannot do without (for instance your home and its contents), and you could not afford to replace it out of your liquid assets if it were destroyed tomorrow, it should be insured for replacement value. It is important to reevaluate your insured assets annually and any time you addd to them substantially, check the market so you know what it would cost to replace them, and make sure the coverage limits would truly replace what you have to lose. For less critical assets, determining whether and for how much to insure depends on your judgement of how much you need the asset at issue, how likely it is to be destroyed, whether you could afford to replace it, and your appetite for risk. Horses are a good case in point. While many of us think we cannot live without them, in fact we would survive without them, though many of us choose not to. Horses are fairly hazard prone and very vulnerable to things like serious colic, so the need to replace a favorite is not unlikely. The nature of the horse's activity and the environment in which he lives will factor into the likelihood of the need for replacement. The equivalent of the horse you spent years training can cost a good deal of money. If you need or want to be able to replace such a horse with an animal of equivalent quality and training, insuring for the horse's full value is probably a good decision, and you would also want to look at loss of use coverage. If you would rather start over with another young horse, but could still use help with the purchase price, then you might save on premiums by insuring your horse at a lower declared value. If you decide to do this, BE SURE that you document the current horse's actual value and the reason for insuring at a lower value. This will help protect your ability to collect actual damages should someone else cause the demise of your horse. If you are sure you could never replace the marvelous animal that currently graces your life, you may still want to insure him for mortality because of the major medical coverage that can only be purchased if the horse is insured for mortality. This saves a potentially devastating decision if your horse could be saved by surgery or expensive treatment, but you are without the cash reserves to pay for it when the horse needs it. If, on the other hand, you could replace your favorite, he's not doing anything particularly dangerous, you always have enough reserves to pay for necessary veterinary treatment, and you could earn a good return on your money by investing it well in another place, you are might decide to "self insure." That is, you choose to bear the risk that something will happen to your assets, and that you will be able to replace what is necessary for you to pick up and go on without the help of an insurance company. Every time you put off buying insurance coverage this is what you are doing. In some cases it is a valid decision, but make sure that it is an intentional, informed and conscious one. Self insuring by default is often not a very good idea.