definition

In the context of finance, insurance coverage to replace a catastrophic loss.  Risk can also be managed through choice of business form or account registration.

commentary

Insurance is best used to cover potential losses that are both catastrophic and rare.   Insurance policies used to cover smaller, more common losses are less effective and advisable.  In certain situations, life insurance is appropriate, as is disability insurance and long term care insurance.  Medical insurance is considered a a necessity by most people, as is homeowners insurance and auto insurance.  Umbrella insurance is suitable in some situations.

Assets held in life insurance cash value,  IRAs and qualified plans,  and in corporate or LLC  ownership provide some asset protection. The degree of protection varies by State of residence.  For example: in Washington State, IRAs and Qualified Retirement Plans are exempt from lawsuits, judgments,  creditors, and bankruptcy, whereas in many other states the exemption amount is limited to a low dollar amount.