Insurance is protection against possible financial loss. Since you cannot predict the future, you never know when something terrible might happen to you or your property. Insurance allows you to be prepared for the worst.
Insurance gives you peace of mind and protects you from financial loss when trouble strikes. In addition, it protects against many risks, such as unexpected property loss, illness, and injury. Although many kinds of insurance exist, they all have several characteristics.
An insurance company, or insurer, is a risk-sharing company that agrees to pay for losses that may happen to someone it insures. A person joins the risk-sharing group by purchasing a contract known as a policy. The purchaser of the insurance policy is called a policyholder. Under an insurance policy, the insurance company agrees to take on the policyholder’s risk. In return, the policyholder pays the company a premium, which is an insurance fee. The protection provided by the terms of an insurance policy is known as coverage, and the person protected by the policy is known as the insured.
Need of Insurance as per Life Changing Events
Case Study
Your insurance planning should change along with your needs and goals. For example, Ameesh and Kritika are a young married couple. The following four steps outline how they plan their insurance needs to meet their needs and goals.
STEP 1: Set Insurance Goals
Ameesh and Kritika’s main goal should be to minimize personal, property, and liability risks. However, they also need to decide how they will cover costs resulting from a potential loss.
Income, age, family size, lifestyle, experience, and responsibilities are essential in determining their goals. The insurance that they buy must reflect those goals.
Ameesh and Kritika should try to come up with a basic risk-management plan that achieves the following goals:
- Reduces possible loss of income caused by premature death, illness, accident, or unemployment.
- Reduces possible loss of income, savings, and property caused by personal negligence.
- Reduces possible property loss caused by perils, such as fire, theft, or hazards.
Step 2: Develop a Plan
Planning is a way of taking control of your life instead of just letting life happen to you. Ameesh and Kritika need to determine what risks they face and what risks they can afford to take. They also have to decide what resources can help them reduce the damage that serious risks could cause.
Furthermore, they need to know what kind of insurance is available. The cost of different kinds of insurance and how the costs vary among companies will be critical factors in their plan. Finally, this couple needs to research the record of reliability of different insurance companies.
Ameesh and Kritika should ask four questions as they develop their risk-management plan:
- First, what do they need to insure?
- For how much should they insure it?
- What kind of insurance should they buy?
- Finally, which insurance company should they choose?
Step 3: Put Your Plan into Action
After they have developed their plan, Ameesh and Kritika must follow through by putting it into action. During this process, they might discover that they do not have enough insurance protection. If that is the case, they could purchase additional coverage or change the kind of coverage they have. Another alternative would be to adjust their budget to cover the cost of additional insurance. Finally, Ameesh and Kritika might expand their savings or investment plans and use those funds in the case of an emergency.
The best risk-management plans would be flexible enough to allow Ameesh and Kritika to respond to changing life situations. Their goal should be to create an insurance plan that can grow or shrink as their protection needs change.
Step 4: Review Your Results
You should take time to review a risk-management plan every two or three years or whenever family circumstances change.
For example, Ameesh and Kritika have been satisfied with the coverage provided by their insurance policies. However, when the couple bought a house some time back, it was time for them to review their insurance plan. With the new house, the risks became much more significant. After all, what would happen if a fire destroyed part of their home?
The needs of a couple who rent an apartment differ from those of a couple who own a house. Both couples face similar risks, but their financial responsibilities vary greatly. When you are developing or reviewing a risk-management plan, ask yourself if you are providing the financial resources you will need to protect yourself, your family, if you have one, and your property.
Different Types of Insurances
Let’s discuss the various types of insurance contracts. First, insurance contracts can be broadly classified into life insurance contracts and non-life insurance (i.e., General Insurance) contracts:
Life insurance is the insurance of human life and is long-term insurance. In contrast, general insurance is annual insurance with some exceptions. In addition, general insurance covers all insurance categories other than life, like health, motor, and personal liability insurance.
General insurance contracts are yearly contracts and are based on the indemnity principle. This makes a difference in the premium amount, which is complicated as more variables are considered than life insurance.
The reason for general insurance contracts being annual is that the subject matter insured is subject to change. It may undergo visible wear and tear and depreciate, even suffer from loss of value, become obsolete, out-of-fashion or difficult to service, etc.
How to Choose the Best Insurance?
When choosing the right insurance policy, the most important thing is to find out what kind of coverage you need. This way, you can avoid paying too much for a policy that doesn’t cover your needs.
A simple way of finding out what kind of coverage you need is by using an online insurance comparison website such as CarInsuranceComparison.com, which has a wide range of insurance plans and quotes from different insurers. The good idea is to compare all the available policies with each other and select the best one for your needs.
There is no point in paying more for insurance than necessary. Here are some suggestions for achieving this goal.
Select Appropriate Coverage and Limits
Buy only needed coverages, and select policy limits appropriate for the most significant potential losses.
Retain Risks
That Are Affordable. Retain risks that you can afford by raising a deductible, for example—and only insure against losses that would be financially unaffordable.
Avail Available Discounts
Most insurance companies offer discounted premiums for policyholders who buy multiple policies (for example, automobile and homeowner’s insurance).
Engage in Loss Control
Many companies charge lower premiums to policyholders who take steps to reduce the probability or severity of a loss. For example, discounts are available for installing deadbolt door locks or a fire extinguisher in your home. But, again, ask your agent what you need to do to qualify.
Shop Around for the Lowest-Cost Coverage
Insurance premiums from one company can be twice as much as that charged by another, and for essentially the same coverage, considerable savings can be realized by seeking quotes from multiple agents and direct sellers. To obtain a quotation, telephone an agent or direct seller and provide basic descriptive information. You can also use a Web-based quote service.
Conclusion: Reasons Why Insurance is Important in Everyday Life
Insurance is key to focusing on the essentials in life because it will ensure financial security for you and your family should anything unfortunate happen. When enormous financial burdens like hospital bills or medical charges arise, insurance helps meet the costs, allowing you to pursue your dreams.
Reasons for Taking Different Insurances
- Life insurance provides financial for your loved ones should you become unavailable to work. This insurance enables them to continue enjoying a comfortable lifestyle with minimum worry.
- Health insurance helps pay your bills should you develop certain illnesses or suffer from injury or disability.
- Endowment insurance provides for children’s education expenses and helps in retirement planning.
- Motor insurance protects you from liability towards the third party and covers the vehicle from theft and accidental damage. It’s also required as per the law of the state.
- Property and Content insurance protects the home, building, and its content, like furniture, electrical equipment, etc., in the event of a fire, damage, or other unforeseen circumstances.
