Why Insurance is Important
Most of the folks that I know, do not believe nor include insurance as part of their budget of expenses. To most, this is really an “expense” that they could forgo without really contemplating on why Insurance is Important.
So what is it and why do we need it?
Insurance, in law and economics, is a form of risk management primarily used to hedge the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium. The insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Ok, in Layman’s terms, insurance is an instrument whereby one pays a premium to have his property insured. This would pay for any losses he might incur in case an accident may happen. This provides indemnification against loss or liability from specified events and circumstances that may occur or be discovered during a specified period. ”
Remembering my early years as an insurance agent. I had a friend who I offered comprehensive coverage for his vehicle. His initial coverage covered only compulsory third-party liability or CTPL.
During the life of the policy, the vehicle met an accident. Luckily he did not hit any person he just hit a lamp post. He thanked me for the additional coverage since the coverage took care of repairing his vehicle at a very minor cost to him.
Another incident involving motor vehicle accidents was when my son’s godfather called me up and said he accidentally hit a drunk person crossing the street. The fellow died and left my friend in shock. His coverage took care of the burial costs. And other expenses my friend would have coughed up had he not taken the additional coverage.
Considering insurance as an expense may not seem fair. This is one of the few products I know that can give us peace of mind.
Originally published in https://practicalbiz.blogspot.com
