Importance of Insurance: Security for Uncertain Times

importance of insuranceInsurance is everywhere, but not everyone knows what it is, how it works, or most importantly, why it’s needed. Most types of insurance, though highly recommended, are optional, but others, like automobile insurance, are necessary, with a ticket coming your way if caught driving without it. Some view insurance as unnecessary or wasteful – even Ned Flanders, the church-going, mustachioed neighbor on The Simpsons steers clear of it because he sees insurance as a form of gambling, and at odds with his religious views. No matter your what you views on this complicated, ubiquitous protection are, it has an important place in many people’s lives.

Today, we are discussing insurance, and why it’s important. Chances are, you are somehow insured, whether it’s your health, car, or home, your are somehow, some way, being protected by insurance as we speak. While some view it as a rip-off, and just another way to line the pockets of a corporation, insurance has saved people untold amounts of money. If you’re already involved in the world of insurance as a salesperson, and would like to kick your career into high gear, this course on how to be a high performance insurance broker will give you a sneak peak into our extensive four-part course on how to make the big bucks with your insurance practice.

What is Insurance?

Some of you may be a little unsure as to what exactly insurance is and what it does, so we’ll start off by clearing things up. Basically, insurance is risk coverage that can be purchased by a person or company. What would someone want to cover from risk, you ask? Pretty much anything and everything. The most widely purchased insurances are car insurance, health insurance, boat insurance, and home insurance, which can include protection from fire, flood, hurricane, or any other “acts of God”, depending on where you live. Basically, anything of value can be insured, even body parts, with famous British insurer Lloyd’s of London having insured Betty Grable and Lord of the Dance’s Michael Flatley’s legs, Bruce Springsteen’s voice, and even food critic Egon Ronay’s taste buds.

Once the insured takes out a policy (the document stating what is covered), they then pay a premium, which is a monthly, quarterly, or annual payment for the insurance. Premiums range in price, with the cheaper ones covering less and paying off a small amount, to more expensive policies, which cover much more, and have a higher pay off should something happen.

One type of insurance that’s been in the news lately is health insurance. If you’d like to learn more about this complex type of protection, this course on the basics of health insurance will help fill you in.

One of the more morbid, but necessary, types of insurance is life insurance, which pays off if someone dies, usually to a family member or a spouse, who may have trouble supporting themselves in the event of the death of the insured. If you’re a fan of mystery or film noir, chances are you’re familiar with how these policies work, with someone knocking off their husband or wife in order to collect the insurance money. With these policies, the insured pays a premium, like any other insurance policy, but the life insurance policy accumulates money which the insured is then allowed to take a loan against, in case they happen to need some money. This is referred to as a “living benefit”.

Why Is Insurance Important?

Now that you have a pretty good idea of what insurance is (it gets way more complicated than what we just explained, as anyone who’s had to deal with it already knows), let’s discuss why it’s so important.

Importance to Individuals

Representing the benefits of insurance on the smallest scale, insurance has a great influence on individual people like you and me.

  1. Safety and Security: Insurance’s main purpose is to provide for the insured should anything catastrophic happen. If your house is destroyed, you car wrecked, or your health decimated by illness, insurance steps in an helps take care of any financial burden that results from the incident.
  2. Peace of Mind: Aside from financial security, insurance also provides mental security, knowing that your health, family, and possessions are taken care of should the unexpected happen. If you’re unsure how to go about planning your financial future, this article on estate planning, and this article on personal finance will help you achieve the piece of mind that planning your future gives you.
  3. Encourages Savings: Specific only to life insurance, when the insured pays into this type of policy, it is seen as a type of saving and investing, not only  because they are able to take a loan out on it, but if it matures before the insured person dies, they receive the lump sum of the contract. To learn more about this type of protection, check out this course on life insurance, and find a plan that works best for you.

Importance to Businesses

Not just beneficial to individuals and their families, insurance also plays a large role in the operations of businesses of all sizes.

  1. Reduced Uncertainty: If the physical components of a business, i.e. the factory, machinery, offices, etc., are destroyed, pretty much any hope of rebuilding is shattered if they were not insured. Furthermore, if a business were so unprofessional as to operate uninsured, they would have a difficult time finding people to invest in an unprotected operation.
  2. Increased Efficiency: Much like the insured individual, the owners and management of an insured business have piece of mind, and this piece of mind translates into unworried people who are able to focus their attention onto the the business’ operations, rather than what will happen if an accident occurs.
  3. Key Man Protection: This type of insurance is very specifically tailored to business. If an operation has in its employ someone who is so vital to the business that their death would be catastrophic for them, then a policy is taken out on them. A form of life insurance, a key man policy is reserved for those workers who brings to the table such indispensable things as capital, expertise, goodwill, energy, dutifulness, etc., that the business would falter due to their absence. The value of the policy would be equal to the amount of profits lost, money spent on training a replacement, and any monies owed to the key man’s dependents.
  4. Better Credit: A business may put up an insurance policy as collateral for a loan, thus increasing their status to potential credit lenders. To learn more about money lending, this course on understanding loans should shine some light on the subject.
  5. Employee Welfare: It’s a business owner’s responsibility to look after the welfare of their workers and their families should bad luck befall them. Besides life insurance, a business owner may take out accident and sickness insurance, as well as a pension, the premiums of which the employer usually pays. Not only do these help the worker and their family, but also provide goodwill for the business and management.

Importance to Society

Finally, the benefits of insurance on the largest scale are those realized by society as a whole.

  1. Protection of Society’s Wealth: Society as a whole benefits when its component parts are protected by insurance: its people generate more income when they are not only healthy and care-free, but also not worried about their financial future, its assets, such as buildings, crops, livestock, etc., are able to produce to their fullest extent when protected, and its oldest and youngest members are able to prosper with the aid of insurance.
  2. Economic Growth: When the components of industry, such as plant, property, and equipment (to use an economic phrase), are protected, the owners of these assets are at ease knowing they will be repaid in the event of a disaster, and as a result, are more confident, resulting in more production and investment, thus stimulating the economy. This course on commercial property insurance will explain more about this meeting of business and finance.
  3. Reduced Inflation: As result of money paid to insurance premiums, production increases and the overall supply of money decreases, resulting in a decrease of the inflationary gap, which also results in a benefit of the overall economy.

Though you may not understand the details of how insurance works exactly, and it can be quite confusing, it should be obvious now that it, in fact, benefits many people, not only as individuals, but also overall as businesses and a society. Some things in life are simply too important not to protect, and many, many times insurance has made the best of a bad situation. If you’re already an insurance broker, or are considering becoming one, this course on social media for insurance brokers will show you how to take advantage of this growing phenomenon.