The Basic Purpose of Insurance


The Basic Purpose of Insurance. The basic purpose of insurance is risk management. But is it really necessary to insure ourselves against everything, or can we manage some of the risk on our own?

It wasn't that long ago when the only types of insurance available were auto, life, and house insurance. Now we can buy insurance for things like identity theft, health, disability, critical illness, dental, travel, and even trip cancellation insurance. On top of all that, banks are quick to offer you mortgage insurance or insurance on your credit card or loan debts.
Why do People Buy Insurance?

As I mentioned earlier, the basic purpose of insurance is risk management. For example, when you buy life insurance, you are protecting your dependents from financial hardship if you were to pass away prematurely. Another example would be your auto insurance, you are managing the financial risk of damage and claims from a potential auto accident.
Do You Really Need to Buy That Insurance Policy?

The short answer is that it's really up to you. Some people are just more risk averse and would feel better being protected by a lot of different insurance policies. There's really nothing wrong with that. However, there are other ways that you can manage risk, and save yourself some money on insurance premiums.

For example, let's say that you're worried about identity theft. You could take some simple steps on your own to manage your own risk. A good paper shredder and some safe web surfing habits like clearing your browser history can go a long way in preventing identity theft.

The basic idea is that you should start thinking about what risks you really need to insure yourself against and which ones you can manage on your own. The final answers are up to you based on what you're comfortable with and how much you're willing to pay.
Not all Risks Can Be Managed on Your Own

You can manage a lot of risks on your own, but accidents do happen. It's the areas that are outside of your control that you should consider insuring yourself against first. The main areas are life, auto, health and home. A good insurance policy can make a big difference for you and your familie's financial welfare if something unexpected happens.
Make Sure You Get the Best Deal

In it's simplest terms, insurance is meant to manage future financial risk. We don't know what's coming tomorrow, next month, or next year that could cost us a lot of money. By properly insuring yourself, you can protect yourself from potential financial hardship.

Life insurance manages risk just like most other types of insurance. But what risk does it manage? There is the obvious risk of passing away unexpectedly due to an accident or illness. But if you don't get to benefit from the payout, what's the point of having it?

Losing a loved one is always difficult for a family. But if that loved one was also a contributer to the household income, that income is also lost when they pass away. In some cases, the loss of that income can be financially devastating for a family.

Insurance can never replace lost loved one, but by making sure you have enough coverage, you can be sure that you're family won't have to struggle financially if you pass away unexpectedly. With proper insurance in place, you can put the risk behind you and move on with enjoying your life.


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