Why Do We Need Insurance?

July 09, 2015
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What Makes Insurance Coverage So Important?

Insurance is the art of shifting financial loss of a firm or a person to a different entity at a cost for possible future reimbursement. The entity transferring the risk is called the insured while the entity in reception of the peril is the insurer.

Insurance pulls together individuals (natural and artificial) faced with the same risk of possible future financial losses to contribute to a fund to be used to compensate any one amongst themselves who suffers financial loss occasioned by the occurrence of the covered risk.

Insurance and Law

Insurance has become more of a legal term owing to its regulation that began in 1940s with the famous States vs. South Eastern Underwriters Association case in which the United States Supreme Court ordered regulation of all insurance transaction henceforth. What followed the Supreme Court's ruling were several legislation on insurance such as Sherman Act, Clayton Act and Federal Trade Commission Act.

In law, insurance is a contract whereby one party to the agreement (insurer) accepts to compensate (indemnify) the other party (insured) in the event the insured risk occurs at some time in future evidencing financial loss to the person or entity covered by the insurance policy. The insured is required to pay premiums at regular intervals as has been agreed between both parties in the insurance policy.

Insurance has and continues to play a huge role by not only salvaging diminishing businesses but also through saving life in hospitals by paying off medical expenses for the assured.

The principle anchoring insurance suspends on two concepts; unforeseeable and unpredictable future as well as the possibility of financial loss.

Why You Need to Take Insurance

There are 3 crucial driving forces to paying premiums for your insurance policy. The most obvious reason of them all is to prevent financial loss in the event the insured property encounters the insured peril. For instance, you buy a car and you fail to insure the same against theft. In the event the car gets stolen, you have yourself to blame, but if you had insured the vehicle against the same menace, you wouldn't even raise your eyebrows. You would simply walk to your insurance company and ask for the same model that got stolen without paying an extra coin.

What is intriguing about insurance is that in the event your insured risk happens, it doesn't matter how many times or how much premiums you have paid for the risk. Whether the insured car vanishes just after the receipt of the first premium or there after does not change a thing or vary the amount of compensation to be paid.

Far from securing the future of your business, insuring your business makes it credible in the eyes of parties seeking to transact business with you. In the same breath you are able to attract many clients as well as financial support for your business.

The third reason why you cannot afford to live without an insurance policy is due to the fact that most industries ask for insurance covers before they can embark on any business with you or your firm. Insuring your company proves that you are not a sham and that you are conducting a registered legal business.

Some insurance are considered demand products as they are mandatory such as Car and Home Insurance if you have a mortgage. Other insurance products like life, health or disability coverage are non-demand products which will give you or your loved one security in the event of a claim. Since most of us do not have unlimited amounts of cash on hand, having insurance is the only way to have quality peace of mind.