What Is Insurance & Why Is It So Important?

What Is Insurance?

Insurance is a financial product that protects against unforeseen risks. The risk may be financial, in that you can lose money, or it may be physical, in which case you could suffer physical injury or damage to property.

Insurance policies are typically sold by licensed insurance companies (the same companies that provide auto and home insurance), but they can also be purchased directly from an insurance company.

The primary purpose of insurance is to protect individuals and businesses from losses caused by unexpected events. Insurance companies collect premiums from policyholders, which are used to pay for benefits when the insured event occurs (e.g., a car crash).

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What Does an Insurance Policy Include?

An insurance policy is a contract that protects you against financial loss. The policyholder (the insured) pays a premium to the insurer, and the insurer agrees to reimburse losses incurred from covered events.

Insurance policies are usually grouped into classes or categories. For example, homeowners insurance provides coverage for your home and its contents. If you have an auto policy, it covers you for damage to your car and medical expenses resulting from an accident.

 

An Insurance Policy Contains Several Sections:

Declarations Page:

This describes the basic information about the policy and who’s covered by it. It also includes declarations of exclusions, which are specific items that aren’t covered by the policy.

For example, many homeowners’ policies don’t cover flood damage because flooding can result from a wide variety of causes beyond those directly related to storms or wind damage.

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Policy Conditions:

These describe the terms under which the company is obligated to provide benefits and any limits on those obligations. Some common conditions include “no-fault” provisions that require all parties involved in an accident to be compensated equally regardless of who was at fault; deductibles that require policyholders to pay certain amounts out-of-pocket before benefits kick in; and co-insurance requirements that require owners to share some of their losses with their insurance companies.

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Exclusions: 

Exclusions are particular situations or circumstances that aren’t covered by your policy for one reason or another (such as a hurricane).

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Subrogation Rights:

Subrogation allows insurers to collect damages from wrongdoers who caused injuries or property damage and then offset those payments against their own losses. If an insured person gets into an accident with a driver who doesn’t have auto insurance and causes personal injury, property damage, or even death, the insurer can go after the uninsured driver’s assets to recoup costs paid out to cover these losses.

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Why Having an Insurance Policy is Important?

Insurance is a great way to protect yourself, your family, and your belongings. However, there are many misconceptions about insurance that can make it seem like an unnecessary expense. Here are SIX reasons why everyone should have some form of insurance coverage:

 1. It Pays For Unplanned Expenses

Life can be unpredictable. You never know when you might need your insurance to cover an unexpected bill. But if you don’t have insurance to pay for it, how will you come up with the money? You might be able to borrow from family or friends or forgo some of your bills for a while, but these options aren’t always available or practical.

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2. It Helps You Plan For The Future

If something bad happens to you or someone in your family, insurance can help you get back on your feet and plan for the future. When you’re injured in an accident and can’t work, disability insurance helps replace lost income so that you can pay bills and take care of your family without worrying about piling up debt. If you have children, life insurance can cover the cost of putting them through college. And if something happens to both parents at once, it’s nice knowing that there is money set aside to help cover expenses while they’re gone.

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3. It Can Save Taxes

Insurance premiums are a tax-deductible expense if they’re used toward medical care or financial losses covered by a policy (such as car repairs). The IRS considers payments made for insurance premiums as an out-of-pocket medical expense, which means that you can deduct them from your income taxes—which is a win-win situation for everyone involved.

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4. Insurance Protects Against Loss of Income

If you’re self-employed or if you work part-time and want to work full-time but can’t afford daycare, insurance can cover some of those costs so that you’re not financially penalized for having children or needing help with child care. If you’re injured on the job and can’t work for an extended time period (or at all), insurance will compensate you for lost wages while you recover. If your employer goes out of business, disability insurance will cover some or all of your salary while you look for another job (up to a certain amount).

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5. It Gives Peace of Mind When Unexpected Events Occur

When you buy insurance, you pay monthly or yearly fees that help protect you against unexpected events like natural disasters, accidents, and more. If something happens that causes damage to your home or personal property, your policy will pay out funds so that you can repair or replace what was lost—saving you potentially thousands of dollars in repairs and replacements costs.

6. It’s Cheaper Than You Think

Many people mistakenly believe that insurance is expensive, but it can actually save you money in the long run by covering unexpected bills and helping you avoid debt in case of an accident or illness. Insurance policies vary based on what type of coverage they offer and how much money they cost each month, so it’s important to do some research before making any decisions about which plan is best for your needs.

It is highly advisable to first decide on the goals of having insurance before you compare insurance policies to pick the best.

If you’re having trouble with mutual funds investing, choosing the best insurance plans, and tax planning, then Simplifysors is here to help.