Intro To Insurance: What Is Insurance?
By Cathy Pareto
Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. (For background reading, see The History Of Insurance In America.)
Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate. We say "significant" because if the potential loss is small, then it doesn't make sense to pay a premium to protect against the loss. After all, you would not pay a monthly premium to protect against a $50 loss because this would not be considered a financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary loss. Take life insurance as an example. If you are the primary breadwinner in your home, the loss of income that your family would experience as a result of our premature death is considered a significant loss and hardship that you should protect them against. It would be very difficult for your family to replace your income, so the monthly premiums ensure that if you die, your income will be replaced by the insured amount. The same principle applies to many other forms of insurance. If the potential loss will have a detrimental effect on the person or entity, insurance makes sense. (For more insight, see 15 Insurance Policies You Don't Need.)
Everyone that wants to protect themselves or someone else against financial hardship should consider insurance. This may include:
- Protecting family after one's death from loss of income
- Ensuring debt repayment after death
- Covering contingent liabilities
- Protecting against the death of a key employee or person in your business
- Buying out a partner or co-shareholder after his or her death
- Protecting your business from business interruption and loss of income
- Protecting yourself against unforeseeable health expenses
- Protecting your home against theft, fire, flood and other hazards
- Protecting yourself against lawsuits
- Protecting yourself in the event of disability
- Protecting your car against theft or losses incurred because of accidents
- And many more
An employee benefit, used with a Health Savings Account, that ...
A low-cost student loan offered to parents of students currently ...
A health insurance plan with a high minimum deductible that that ...
An economic theory stipulating that rises in public sector spending ...
An insurance policy that covers glass that has been broken or ...
A federal law that makes federal disaster relief and federal ...
In most cases, market actors have to be compensated for assuming risk, and the higher the degree of risk, the greater the ... Read Full Answer >>
Dental implants have become a widely used procedure in dentistry. Despite their popularity, however, they tend to not be ... Read Full Answer >>
Most full dental insurance policies include some restorative coverage, usually meaning that up to 50% of the cost of dentures ... Read Full Answer >>
CareCredit has become a widely used option when it comes to paying for medical procedures, primarily procedures not typically ... Read Full Answer >>
Flexible Spending Accounts (FSAs) can be used to pay for dental expenses including deductibles and co-payments with pretax ... Read Full Answer >>
Most regular dental plans cover little to none of the costs of braces. The primary focus of regular dental plans is prevention ... Read Full Answer >>