Insurance is all about minimizing the financial consequence of a risk that materializes. Insurance transfer the financial consequence of a loss one suffers to an Insurance company for a relatively small amount of money known as premiums which are paid to the Insurance company. The Insurance company maintains a fund from all the people who face a similar risk. It compensates from that fund the losses suffered by a few people from the large fund. We are aware that all our activities are subject to risk of loss from unseen activities. Examples:
1. Being alive carries the risk of death every single breath that you take, regardless of your age, gender, race, geographical location. Life Insurance will not prevent your untimely or early death but, it will cater of your financial absence and make it a little easy for your loved ones and, dependents to ease the financial burden. Similarly, living too long is also a risk. Who will provide for me when I live too long beyond my income producing time? Should I force my children, family, friends and community to make financial sacrifice of their needs in order to keep this old, dependent man who is living beyond his expected days? Planning and getting a suitable Life Insurance cover while I am still earning an income to cater for my needs when and if, I live too long will reduce the financial burden on my loved ones.
2. Driving a vehicle carries a risk of an accident throughout. Whether you hit somebody, or someone’s property and cause damage to it, or some other vehicle or falling objects hits you and causes damage to you and the vehicle. The risk of an accident, and damages following an accident are always present. Taking a suitable Insurance cover transfers the financial consequence of the accident.
3. We are subject to illness and bodily injuries via accidents, and spend lots of money in hospital bills. Medical Insurance helps reduce the financial burden of these hefty bills.
There are very many types of risks that we face, and getting an insurance cover simple helps in reducing the financial burden when faced with such a calamity.
On a light note, Insurance helps individuals disciplined and organized by making regular savings and investing in form of paying premiums (Life Insurance covers) and guides financially to live a better and more fulfilling lives.