Ever wondered, Why is insurance important? Or What Insurance is?
Well if you have, be rest assured that you are not alone.
Many have heard about Insurance but do not know what it is, how it works and why it is important.
In this article, we will discuss this mysterious concept called Insurance.
What is Insurance?
Insurance is a financial contract that gives financial protection and compensation to an individual, his family and assets in case of a disaster or accident. That is, paying an insurance company so they can help you recover later if something bad happens.
An unforeseen event might cause you to lose important properties and assets. Some of such events are fire outbreaks, natural disasters, robberies, car accidents and so on.
Rather than spend all your savings trying to repair or replace them, an insurance company will assist you to take care of the loss financially. It is like having cash in a jar for a rainy day.
You can Insure your important assets like your house/buildings, car, family, body parts and life.
How does it work?
When you pay for insurance, the company gives you an insurance policy; a legal contract between you and the company.
The policy stipulates how much you pay, the kind of loss it covers and how much will be disbursed when there is a loss.
The company compensates its policyholders using the collective premium (i.e money collected from its policyholders). They also make investments with the premium to fund their operation and ensure they are financially ready to handle any loss a policyholder suffers.
Why is Insurance important?
Many are sceptical about paying for insurance because it feels like paying for something that will never happen. But you should, after all, you cannot predict what might happen.
Accidents and natural disasters are unpredictable and can happen to anyone, anywhere, at any time. This is why having insurance is important.
Insurance is an important part of risk management. It takes away the worry or uncertainty of how to recover when something bad happens. The Insurer takes away the risk from the Insured.
An unexpected event can drain your finance in a moment but Insurance ensures you remain financially stable after such an event.
It also helps to protect your family. In the case of life insurance, it could mean your family thrives financially after a tragedy. The kids can keep going to school and the house may not need to be sold.
Sometimes Insurance also protects others, like in the case of a road accident. This is why in countries like India, vehicle insurance is compulsory for yourself and others.
To know about the Insurance available in your area and its benefits, contact a local insurance agent or research online.