What is Insurance?
Insurance is one of the most important and one of the most complex financial aspects that is still used in almost every facet of life in almost all countries. Insurance is simply having something insured if something were to go wrong – you can insure a variety of things, ranging from your vehicles to even your own life. There are a variety of reasons why you would want to insure something – maybe you value it and want to keep it safe, or you want a monetary reward if it gets damaged.
Insurance is a form of risk management that is used to protect against the risk of monetary loss or damage. The textbook definition is “the equitable transfer of the risk of loss, from one entity to another, in exchange for payment.” To put it in simpler terms, you make monthly payments on your insurance policy, and if something happens to go wrong you will not be liable for the loss. There is a cost benefit analysis that must be performed to see if something is worth insuring in the first place or if it is better to leave it up for chance.
Insurance is used in almost every facet of life, ranging from vehicle insurance, life insurance, medical insurance, dental insurance to even boat or ATV insurance. When you with to obtain insurance for a certain item, you must agree upon a premium that you must pay each month. Your premium is determined by a variety of factors, but namely the cost of the item you want to insure and how prone it is to damage or loss. You essentially form a contract which is known as the insurance policy – if you item is damaged or lost, you will be compensated for the amount as outlined in your insurance policy.