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Why Do You Need Insurance?

Why Do You Need Insurance?

Insurance is a way of managing risk. When you buy insurance, you transfer the cost of potential losses to the insurance company in exchange for expenses, called premiums.

Insurance companies invest funds safely, so they can grow and pay when there are claims. The key role of insurance is to help people financially protect themselves from uncertainties in life, such as natural disasters, car accidents or life-long diseases.

Insurance pools the resources of a large number of people with similar risks to ensure that the few who suffer losses are protected. When you buy insurance and pay premiums, you invest a little bit. If your property is accidentally lost, stolen, damaged or destroyed, and you have a general insurance policy for the property that covers these risks, you can file a claim and use the amount to help pay for repairs or replacement costs. If valuables are lost, stolen, damaged or destroyed, this allows you to avoid paying the full cost of replacing, repairing, rebuilding or restoring valuables. This also means that you can avoid ending up with huge debts or liabilities.

When you pay insurance premiums, you can only use the pool of funds when you claim the losses covered by the insurance policy. A person who has paid insurance premiums for many years may never make a claim.

When you buy an insurance policy, your insurance company promises to pay you for the type of loss specified in the policy, such as accident, theft, loss, or disaster.  This includes funding for repairs or replacement items, up to your policy limit, or sometimes cash settlement. Each insurance company policy has different regulations on the content covered by the policy. Exclusions may apply, so you should read your policy carefully. If you are not sure what your policy will cover, please seek advice.

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