The Purpose of Insurance
Most people spend as little time as possible thinking about insurance. After all, no one likes to spend much time thinking about how much money they’re spending on something from which they may never see a return. Insurance may not be the most exciting topic in the world, but having a better understanding of just what insurance is, and how it works, can help people make educated decisions about their future, and help them recover faster from an unforeseen accident or disaster.
Why Buy Insurance?
There are many different types of insurance, but they all provide the same basic thing: protection. Buying an insurance policy is an investment in one’s financial future, and a shield against future accidents, sickness, or natural disasters. While no one ever expects those things to happen to them, they have a way of occurring anyway, often at the least convenient time.
The strongest selling point that insurance agents have for their product is what could happen when someone doesn’t have an insurance policy. It can be hard to convince people to spend money on something that doesn’t earn them anything new or produce a monetary return. The main reason to spend money on insurance now is to avoid spending even more money later. Not having insurance is a gamble; buying insurance lets you opt out of the game, or at least lower the stakes.
What Are the Different Kinds of Insurance?
There are many different kinds of insurance, and most households will have more than one insurance policy to their name. The most common types of insurance include:
- Health insurance: Helps defer the cost of medical expenses. Medical insurance is one of the best purchases anyone can make, as medical expenses are the most common cause of bankruptcy in the U.S. Additionally, the Affordable Care Act requires most American to purchase health insurance, or pay a penalty.
- Car insurance: Covers the cost of vehicle repairs in the event of a car accident. With the exception of New Hampshire and Virginia, all states in the U.S. require drivers to have motor vehicle insurance.
- Homeowners insurance: Protects homeowners in the event that their house or property becomes damaged. Depending on the policy, homeowners may need to purchase separate policies for protection from fires, floods, or other natural disasters.
- Life insurance: Provides a payment in the event of someone’s death. There are two main types of life insurance: term life insurance, which offers protection for a fixed period of time, and Whole life insurance, which offers protection as long as the policy is paid.
- Disability insurance: In the event of a temporary or permanent disability, disability insurance reimburses the policy holder for lost wages.
Choosing the Right Coverage
The number of insurance policies a person should have, and the level of protection those policies provide, depends on the individual. Regardless of income or the value of the property someone owns, some types of insurance are recommended for everyone: namely, health insurance and car insurance.
If someone has a family who would be greatly disadvantaged by their death or disability, disability and/or life insurance are a good investment that offer some financial protection from unforeseen catastrophic events.
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