Insurance coverage is an essential part of financial planning as it provides protection from significant, and potentially devastating, financial losses that a person or business may face. A person is able to purchase insurance for many different events, such as obtaining coverage for their home and possessions, their health and medical care, their vehicle, their business and its assets, or their family members. By purchasing an insurance policy, the policy holder agrees to pay the premium (the cost of the policy) and in exchange, the insurance company agrees to pay out any claims made against the policy.

Auto insurance is designed to protect the policy holder and their passengers in the event of an accident. It redeems financial losses arising from the costs associated with repairing the vehicle, medical bills, and legal costs arising from lawsuits. Homeowners insurance is designed to protect policy holders from financial losses resulting from accidental damage or destruction of their home and possessions, or from liability arising from damage or injury caused by their home and/or possessions. Health insurance ensures that policy holders receive medical care from a hospital and other medical professionals, at discounted rates.

Life insurance provides financial protection for families in the event of the untimely death of the policy holder. It provides compensation to survivors, often in the form of a lump sum payment which is used for paying for funeral costs, debt repayment, or to cover lost income if the deceased was the main provider for the family.

Insurance coverage provides protection from significant financial losses that individuals and businesses may face. It also provides peace of mind to consumers as they will not be responsible for covering the costs associated with potentially devastating incidents. Most types of insurance policies have some monthly payment or a single one-time payment option that allows consumers to budget in their insurance policies. Depending on the policy, insurance coverage may also include the added benefit of cash value, or a savings option that allows policy holders to benefit from the taxed-free growth of their money with the help of their insurer.