What is insurance?
Insurance a product... or a service? It's both actually and it's more aptly described as a promise. Quite simply, it's a promise to pay you or your beneficiaries in the event of a loss. You purchase insurance because life has risks.
You might crash your car... a tornado or a fire could cause you to lose your home. Any of these hazards could also take your life as well-- or you could be seriously injured. There is protection available for all of these risks and more in the form of a document or a collection of documents called an insurance policy. An auto insurance policy, for example, will lay out specific risks for which an insurance company will reimburse an insured person for a loss. It will also provide details about what risks are specifically excluded. You agree to make regular payment to the insurance company called "premium". In exchange, the insurance company provides a promise (in writing-- the "policy"), to reimburse you for whatever loss you have experienced.
Insurance is a necessity in a world of uncertainty. There are countless ways to protect yourself against adverse risk and they all involve the basic elements of a standard contract-- offer, acceptance, and consideration. For example, an insurance company will evaluate you as a risk, make an offer to insure you based on your individual underwriting characteristics, you signal your acceptance of their offer and a policy is issued, you pay the company a comparatively small amount of money (consideration) so that they assume the risk of a potentially much larger financial loss. It would be impossible for most Americans to absorb the sudden, accidental loss of their primary residence after it's destroyed by fire for instance. Homeowners insurance, for most average suburbanites costs in the neighborhood of $500-$1,000 per year. The average home in the United States costs $220,500. If you get homeowners insurance in place and your home burns down the next day-- the insurance company will cut you-- and your mortgage company-- a check for the reconstruction costs. It's a bargain that few are reluctant to pay for obvious reasons.
The main types of insurance the average American consumer will need are: Health Insurance, Auto Insurance, Homeowners Insurance, and Life Insurance.
* Health Insurance reimburses the medical facility that treats you or you personally if you're out of pocket for medical expenses. Health insurance costs are high but costs of treatment are much higher. If you're admitted to a hospital for something, even if it turns out to be minor, could cost tens of thousands of dollars. Whine all you want about the cost of health insurance-- but you'll be setting yourself up for a complete breakdown if you don't have it.
* Life insurance , on the other hand, is cheap-- especially if you're young and healthy. For literally pennies a day, consumers of life insurance can secure a promise from an insurer to pay their beneficiaries if they pass away. A 40 year old male can purchase hundreds of thousands of dollars worth of coverage for less than $30 per month under certain circumstances.
* Car insurance can vary widely by state, but it is generally quite affordable. For a small amount of premium, the insurer will reimburse you for the market value of your car, or most importantly, pay the potentially huge costs associated with damages that may result from your negligence behind the wheel.
* Homeowners insurance is similar... it will take care of the cost to rebuild your home, but it will also pay a claimant who is injured on your property if you negligently forgot to shovel the snow from your sidewalk.
Insurance is a necessity in a world of uncertainty. There are countless ways to protect yourself against adverse risk and they all involve the basic elements of a standard contract-- offer, acceptance, and consideration. For example, an insurance company will evaluate you as a risk, make an offer to insure you based on your individual underwriting characteristics, you signal your acceptance of their offer and a policy is issued, you pay the company a comparatively small amount of money (consideration) so that they assume the risk of a potentially much larger financial loss. It would be impossible for most Americans to absorb the sudden, accidental loss of their primary residence after it's destroyed by fire for instance. Homeowners insurance, for most average suburbanites costs in the neighborhood of $500-$1,000 per year. The average home in the United States costs $220,500. If you get homeowners insurance in place and your home burns down the next day-- the insurance company will cut you-- and your mortgage company-- a check for the reconstruction costs. It's a bargain that few are reluctant to pay for obvious reasons.
The main types of insurance the average American consumer will need are: Health Insurance, Auto Insurance, Homeowners Insurance, and Life Insurance.
* Health Insurance reimburses the medical facility that treats you or you personally if you're out of pocket for medical expenses. Health insurance costs are high but costs of treatment are much higher. If you're admitted to a hospital for something, even if it turns out to be minor, could cost tens of thousands of dollars. Whine all you want about the cost of health insurance-- but you'll be setting yourself up for a complete breakdown if you don't have it.
* Life insurance , on the other hand, is cheap-- especially if you're young and healthy. For literally pennies a day, consumers of life insurance can secure a promise from an insurer to pay their beneficiaries if they pass away. A 40 year old male can purchase hundreds of thousands of dollars worth of coverage for less than $30 per month under certain circumstances.
* Car insurance can vary widely by state, but it is generally quite affordable. For a small amount of premium, the insurer will reimburse you for the market value of your car, or most importantly, pay the potentially huge costs associated with damages that may result from your negligence behind the wheel.
* Homeowners insurance is similar... it will take care of the cost to rebuild your home, but it will also pay a claimant who is injured on your property if you negligently forgot to shovel the snow from your sidewalk.
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