What is Insurance and Why is it Important?

Insurance, simply put, is the protecting of assets, the peace of mind knowing your property is safe. There are many types of insurance, from health, life, vehicle, house; the list goes on. Most people living in the developed world have at least one form of insurance and are familiar with how insurance companies operate and how much each form costs generally.

To get back to the basics, insurance is the protecting of something by paying the insurance company a monthly premium (payment). By paying the insurance companies a monthly premium set out in your policy, they will protect your property, health or loved ones if something were to happen. Insurance was first used in the year 4000 BC in the Babylonian empire. Since then, it has evolved to over 30 types of different insurances that companies offer for the consumer.

Multiple insurance companies often compete with each other which results in prices being driven downwards. In the United States alone there are over 200 major insurance companies. With so many companies competing against each other, it is vital that as a consumer, you shop around and find the best deal. When watching television, you will often see advertisments for various insurance companies.

The two types of insurance are indemnity and a pay on behalf policy. An indemnity policy will only pay claims after the insured persons pay out of pocket to the third party. In a pay on behalf policy, the insurance company will pay the claim, and the insured person would not be out of pocket for anything. Most modern insurance companies use this basis for their policies. When an insured person experiences a loss covered by their insurance company, they file a claim against their insurance provider for the covered amount they should receive as specified in the policy.

Insurance is a very important aspect of our daily lives. Imagine this for a moment: you are driving your car and you get rear ended. Insurance doesn’t exist. What are you to do? Chances are you would either be out the amount of money the repair bill was, or you would have to sue the person at fault in a court of law. Imagine your house burned down and you didn’t have insurance; you now are out a house and if you have a mortgage, you still have to pay it! Insurance allows us the peace of mind to purchase expensive assets and know they are for the most part safe.

If insurance didn’t exist, most people wouldn’t buy expensive cars, rich houses, and a lot of people would be sick or be forced to pay thousands of dollars in medical bills. You might think that insurance isn’t worth it. This may be true for some policies such as insurance on a boat that you might use only once or twice a year. But for such a valuable asset as a house, car or your health, insurance is almost a must.