Insurance should be an important part of your personal financial plan. There are several different approaches to building an effective insurance plan. One approach is to focus on specific products; however, insurance products will and do change over time as new products are developed. A better method is a principles-based approach; while products may change over time, the principles regarding effective insurance planning do not change.

The prophet Joseph Smith said the following:

I teach them correct principles and they govern themselves. (in James R. Clark, comp., Messages of the First Presidency of The Church of Jesus Christ of Latter-day Saints, 6 vols., [1965–75], 3:54)

The key to insurance is to balance the cost of reducing risk with the severity of the potential loss. Insure against high severity losses that rarely occur - those events that could have a major impact on your financial situration. Reduce and avoid those other risks that you can. Finally, self insure against the smaller risks that will have limited impact on your financial situation. Use insurance for what insurance does best. Be careful in mixing insurance and investing products.

So what are the key principles of insurance planning that we can apply to help us “govern,” or manage, our various insurance products wisely? The following are a few ideas to help you understand the key principles of insurance planning: