Life is full of surprises; many are good but some others are less so. While we all face the same dangers and risks in life, we understand that accidents and complications can happenand almost every accident comes with a financial cost, whether it is a medical expense, car repairs, or the cost of replacing something lost or destroyed. Everyone would like to be protected from accidents, and if it were possible, people would willingly pay for it. Unfortunately, there is no guarantee that can keep us accident free. There is, however, protection against the financial losses that an accident can cause. It’s called insurance.
What is insurance?
Insurance is simple in its principal; many people contribute to a pool of funds that can be used to pay for the losses that some incur. In practical terms, a company selling insurance collects fees from customers, usually on a monthly or yearly basis, and in return, promises to cover the costs when an accident or other risk affects them. The company is called the “insurer”, its clients are called the “insured” or the “policyholders”, the promise is a written contract called the insurance “policy”, and the fee a policyholder pays is called the “premium”.
Insurance is about certainty. People who take out insurance are not interested in “beating the odds” or “hedging their bets”; they are paying for the confidence of knowing that, should something unexpected happen, they will have the financial means to deal with it. That certainty has great benefits; not only does it provide peace of mind, but it gives confidence to pursue business ventures, undertake travel, make long-term commitments like purchasing a home, and more.
For the insurance company, because they cover a very large number of insured, the frequency and cost of accidents can be accurately calculated. The practice of making these calculations is called actuarial science, and it gives the insurance company confidence that the fees they charge are matched to the frequency and severity of the losses they promise to cover.
Types of insurance
Protecting yourself against unforeseen expenses makes very good sense, and forms of insurance have been practiced as far back as ancient Babylon. Today the types of risks covered are almost endless. There is property insurance for fire, theft, and weather damage, even earthquakes. Business interruption insurance protects companies against all manner of events that might force them to close temporarily. Life insurance provides money to the family of the policyholder when he or she dies, and health insurance covers medical expenses.
A broad category is liability insurance, which protects the insured against damages thattheycause. For example, most car insurance includes protection not only for the cost of repairs, but also for the damage or losses that your car caused in the accident. Liability insurance is available to protect all types of businesses and people against the actual or legal costs of their mistakes.
Insurance for specific industries abound, including marine, financial, construction, sports, and entertainment—the list is endless. There are even insurers for the insurance industry, called re-insurers.
How does it work?
The mechanism for all types of insurance is basically the same. A person or company seeking insurance must fill out an application. This lets the insurer assess the risks associated with that applicant. For example, smokers generally pay higher premiums for health insurance than non-smokers, and sky divers pay higher rates for life insurance than more reasonable people. The insured receives a contract, the policy, which details the conditions under which he or she will be compensated. If the policyholder experiences a loss, he or she submits a claim to the insurer. A claims adjuster verifies the value of the claimed losses and that they are covered by the policy, and after it has been adjusted, the insurer pays the claim.
Do you need insurance?
The answer is yes. Very few of us are wealthy enough to put aside money for all the setbacks that can happen during our lifetime, and even if we could, paying a regular premium is a much more cost-effective approach. Here are the top 4 reasons why you need insurance.
1- Take care of your and your family’s health
Medical expenses can cost a fortune, and unexpected medical costs can be devastating. Health insurance turns taking care of your family’s health into a manageable payment. It also allows you to benefit from yearly check-ups, and it can help with the cost of daily medication. With the right health insurance provider, you can gain immediate access to the best doctors in town and have access to nationwide medical coverage. When choosing your insurance partner, look for a company with access to the biggest medical network, and one that offers modern, quality service that makes getting treatment the click of a button away.
2- Protect your family’s lifestyle
As parents, we tend to focus on our family’s immediate financial needs, but it is just as important to provide for their long-term financial security. Insurance offers protection against financial shortfalls from unexpected events such as unemployment, it can replace lost income because of a disability or injury, and it can provide for your family after death. Insurance is one of the best ways to protect you and your family’s income and standard of living.
3- Protect your property and belongings
Your car and home, and perhaps also your business premises, are your most valuable assets, and it is essential to protect against their loss. Property insurance will cover the costs of these and other belongings if they are lost due to theft, fire, or any number of accidents. But insurance can also help with the expense of repairs and maintenance.
4- Invest for the future
If you are planner, you are already thinking of your future needs. You want to guarantee a reliable income after a long successful career. If you are a family guy, you want to prepare for your children’s future needs, such as their college education or their wedding day. Because insurance companies are entrusted with very large pools of money, they are among the largest and safest investors in the world. Many long-term insurance policies, especially life insurance and retirement insurance, offer an annuity, which lets you benefit from the investment growth of your regular contributions. Recognizing that you are the financial safety net for your family makes long-term planning a top priority, and insurance is a simple way to put this plan into action, and the best way to start while you are young.
Remember that when you buy insurance, you are buying a promise, so it is important to choose a well-established, preferably world-wide, company that is accessible in branches across the country. One that offers a simple and hassle-free method for filing a claim and quick payments.