What is Insurance and Can I Do Without It?

Insurance is an arrangement when an insurer and the insured party sign a contract where the risk of the party is transferred to the insurer, which means the risk of crashing your car and the corresponding cost of repairing it is transferred to the insurance company to which a periodical payment called a premium is paid. The premium is determined by the company and is affected by factors such as age and general health of person in the case of health insurance, or the condition of your car in case of auto insurance.

The game of insurance is played where the company tries to pay the least for accepting the risk while the insured party wants to give a lesser premium. In a way, getting a policy is a form of investment.

Such investments even existed in ancient times when ship owners would insure their cargo while going into risky waters. However, as sophisticated as economies have become, so has the extent and scope of insurance. In the United States alone, 175 million cars were insured in 2004. In 2006, the global total of premiums was $3.7 trillion! By far, United States, Europe and South East Asia including Japan share the largest chunk.

From the amounts above it is not difficult to realize that almost every aspect of our economic lives that entail risk can be insured. One's car, house, health, pet, business etc can be safeguarded through paying a fixed amount. The amount is usually small enough for us to consider a reasonable investment and large enough for the company to think insuring is worthwhile. The finer aspects are however more complicated as there can be exceptions and conditions that bewilder the inexperienced. For example, a company would want to have your complete health profile before proposing a premium, therefore a smoker or a diabetes patient would have to pay more than a normal healthy person. Similarly, a wooden house would have a higher premium than a concrete one and so on. Fortunately, access to information has become easier due to the internet and we can research things like car insurance online of different car insurance companies.

Insurance has become not only desirable but a necessity due to the changing circumstances of our social and economic lives. Nevertheless, it varies from one place to another. For example, where a state health system exists health insurance is comparatively less important compared to a place like the United States where the state does not take responsibility to give free health to all. Varied as it may be the larger the pool of insured people for a particular type of insurance usually means lower premiums like in auto insurance. However, it's sometimes not a choice like when a house is mortgaged or a car is bought on lease.

By and large, if thought out carefully and without ignoring the fine print, insurance is a worthwhile investment and can provide protection from the undesirable but possible events in our lives.