Why the Wealthy purchase Insurance

Wealthy businesses, families and individuals all have one thing in common…they purchase insurance.

Why do the wealthy purchase insurance?

The act of purchasing insurance is a conscious decision to prepare for the future.

Unfortunately, as human beings, we can't control everything in life. Random events, unplanned emergencies and changes in market forces can reap havoc upon the strongest portfolios. By purchasing insurance that is appropriate for your company or familial needs, you are securing wealth and creating opportunities for acquiring greater wealth.

It is true…In order to have enough money to purchase insurance of any sort, some wealth is necessary. But even a privileged sixteen year-old who gets her or his first car, is faced with paying for car insurance. With car insurance, there are two camps of thought. There are people who would rather pay a minimal amount for car insurance and drive very carefully, and there are people who get premium car insurance.

Here's the difference:

Even though everyone should drive carefully all the time, you can't always control what other people on the road are going to do. By getting premium insurance which covers you as much as you can comfortably afford, you will be doing something very special for your life. Premium insurance allows you to worry less about a small aspect of your daily life. For the example of a young person driving for the first time, she would feel comfortable going on that road trip with her friends…because she has good insurance.

Car insurance is a very small-scale example of insurance, but it is a good one. Yet there are other examples of insurance which are much larger.

The Federal Deposit Insurance Corporation (FDIC) is a large-scale example of insurance. It is a Government Sponsored Enterprise which currently insures up to $250,000 for deposit accounts.

Although being a member of the FDIC is required if your bank wants to become a national bank, state level banks can join the FDIC.

Why would a state level bank want to join the FDIC?

By joining the FDIC, a non-national sized bank which only operates in one state would have to pay fees, be open to governmental oversight, and deal with other complications if the hypothetical bank became insolvent. Yet as we mentioned earlier, there are greater opportunities for wealth if you purchase insurance. This directly applies to state level banks and the FDIC. If a bank successfully applies and becomes a member of the FDIC even though they're only a state bank, they get to show the FDIC placard on their window and also tell potential customers that they are FDIC members. This in turn can increase customer confidence that they're dealing with a reputable bank. And potential customers will know their deposits are secure and insured up to $250,000.

In turn, depositors to this bank may be inclined to deposit more money than they might have originally…or even recommend their bank to friends and family.

Insurance is one of the best ways to maintain wealth. It requires planning, sacrifice and encourages thriftiness. Businesses and families that endure the sting of a quarterly insurance bill eventually learn how to cope with the financial drain. In all reality, even if you never have a problem where you are forced to use your insurance to pay for an emergency situation or problem…it still has value. Purchasing insurance is a way of being plugged into the system and being aware of spending habits. Also, some insurance companies can lower premiums if collectively enough members join the program. But more often than not, insurance can provide piece of mind and allow entrepreneurs and heads of households to think about maximizing wealth…and have the freedom to take risks.

Check out this tool by the FDIC which assesses your bank account to see if it is insured or not.