"In this world nothing can be said to be certain, except death and taxes.”
Taxes and insurance are topics so dull that even the keenest reader feels her eyes glaze over. But they’re important—very important. With a basic understanding of taxes and insurance, you can make better decisions about other parts of your financial life and avoid costly mistakes.
This chapter won’t give you all the answers—for that you should consult a professional financial adviser. But it will give you the basic info you need to deal with taxes and insurance effectively. It also provides a very brief overview of estate planning. Ignore this info at your peril!
Insurance is a way to manage risk. As you go about your life, there’s always a chance that you’ll be in a car accident, twist your knee, or that your house will burn down. The risk of these accidents is small, but if one of them were to happen, the effects could be catastrophic. Without insurance, you’d have to come up with the money on your own to repair your car, have knee surgery, or rebuild your home.
Although these things happen to some people, they don’t happen to everyone. With enough data, it’s possible to know roughly how many people are likely to experience these events—and how much recovering from them will cost. Using this info, an insurance company can spread the risk among all its customers.
Here’s an example: Imagine a school with 100 students. Every year for the ...