At its simplest, insurance is nothing more than a way for one person to shift to someone else the risk of something bad happening. I pay you a premium; in return, you agree to take the financial hit if I have an accident, or my house burns, or my horse dies. It’s a gamble that works only because the number of people who suffer catastrophes and collect on their insurance coverage usually is far smaller than the number of risk-averse people who pay premiums. When the cash flow shifts in the opposite direction, when there is a natural disaster resulting in hundreds or thousands of claims, for example, or when a multimillion-dollar horse dies, insurance companies can suffer crippling losses.

Insurance is not just for high-value horses and property. The less able a person is to afford a financial loss, the more that person needs insurance to protect his or her investment. The question is: How much insurance coverage is enough, without being too much?

One way to estimate the kind and amount of coverage needed is by evaluating the type of activities in which a person partici-pates and the level of his or her involvement with horses. As the level of involvement rises, so does the need for various kinds of insurance coverage. The following generalizations might help sort things out