On Insurance in General
To start with, the concept of insurance can be broadly understood as an agreement, a contract between two parties: a policyholder and an insurer. The contract or agreement, if respected by all involved parties, guarantees that the latter (insurer) will be obliged to cover some or all portions of the former’s (policyholder’s) losses, as it had been defined and agreed upon in the contract. As part of respecting the agreement, however, the policyholder is required to pay a regular some of money—aka premium—to the insurer, again as it had been defined and agreed on in the agreement. With the regularly paid premium, the policyholder is entitled to claim insurance coverage from the insurer should the covered or that unwanted risks occur (illness, injuries, car accidents, house fires, death, etc.). Therefore, it is not an overstatement to say that insurance is a means for risk management; in a world full of contingencies and uncertainties, insurance is a wherewithal principally used to hedge, guard against potential personal, material, or financial damage or losses. Fundamentally, an insurance agreement can be viewed as a contract through which trust is traded, whereby the insurer sells it to the policyholder. As for the language in entering into the agreement, it can be literarily translated in the following terms: “as a policyholder, I entrust you (insurer) my financial resources (paid in premium) so that you will be there for me on my ‘rainy days’, when I’m faced with difficult situations”. Moreover, it is worth noting with great emphasis that, depending on the type of insurance, the coverage extends to damage, losses, or injuries caused to a third party—aka third party liabilities—i.e. an insurer—say, car insurance company, for instance—would be liable if its policyholder (a car driver) has a car accident in which a third party is injured, damaged, or killed.
Having dwelled on the concept of insurance, I may now proceed to evaluate whether it is important to have insurance. To properly be able to evaluate such a concern, however, I must ask what is to be insured. Otherwise said, in deciding on whether a particular type of insurance is important at all for us, we must consider first if it is worthwhile to cover or protect such or such particular “items”. That is, we must have something to insure in the very first place, as it is, for instance, inconceivable to buy a car insurance while there is no car to insure. Hence, the above-asked question can be properly formulated thus: what do we have, and how important is what we have? In short, if one owns something that is very important to him/her, then it would be wise to insure that particular thing. Nonetheless, this statement certainly warrants qualifying.
Undoubtedly, regardless of our social class (rich or poor), our social status and gender or age, we all value our health, our well-being. As such, it leads us to the logically unanimous conclusion that health insurance is fundamentally important to all. Indeed, I venture that health insurance should be provided to all whether rich or poor, young or old, male or female, etc. for the undeniable fact that regardless of these social stratifications we all get sick from this or that cause. Thus we have health insurance no less because if we get a costly illness, insurance is the only way we would be able to pay to cover the expenses of the needed treatments. That each government should provide health insurance to all its citizens is as unequivocal as is the struggle for a basic income to all. It is, I believe, an undeniable duty for each government, and a fundamentally inviolable right of all to have access to healthcare, necessary treatments. In a nutshell, beyond any shadow of doubts, health insurance is crucially important for all.
As for all other types of insurance, it is fair to say that their significance solely depends on wealth and preferences of each individual. For example, it makes no sense to purchase a car insurance if one has no car—for whatever reasons—any more than it would be conceivable for the poor individual to purchase life insurance. Likewise, it would only make sense to insure items whose loss or damage would bring about significant financial burden to recover. Having said this, let’s consider, in more detail, some prominent types of insurance, namely car, and life insurance.
The leading type of insurance in the insurance business is car insurance. Yet, it is only important to those individuals whose wealth can afford them a car one. Once these two conditions are met, however, purchasing car insurance is as significantly important as it is an obligation for each car driver to have a driving license. For car owners, car insurance is undoubtedly important for at least three reasons: first, it protects the owner in the sense that the insurance would cover some or all of the financial losses or damage incurred should an accident occur. The second reason, which is the continuity of the first, is that when or if an accident occurs with an insured car, the owner would be financially relieved for having hedged the costs well-beforehand. The third and final reason is perhaps the most important of all. In an event of a major car accident that involved a third party and where the driver is at fault, it would be financially devastating to pay tens of thousands of dollars in order to cover the damaged car(s) and the medical bills of the involved third party. Hence, having car insurance should be an obligation for anyone who can afford to purchase a car in the same way that it ought to be an obligation for drivers to have a driving license before getting on the wheel.
As for life insurance, I believe that the most crucial question to be asked is whether it is needed at all. For instance, an individual whose entire earnings suffice just to cover the necessary desiderata had better not consider purchasing life insurance. The same goes for an individual with no one to benefit from such an insurance after his/her death. In fact, the primary purpose of life insurance is to ensure that one’s death does not bring about dramatic financial problems to one’s dependent(s). That is to say, a breadwinner with direct dependents and whose “bread” is significant enough ought to consider purchasing life insurance in order not to put those who entirely depended on him/her into irrecoverable financial distresses after his/her unexpected death. On the contrary, if one has no potential beneficiaries, no dependents, or if there are many breadwinners to provide the potential beneficiaries with the necessary financial support, or if one’s “bread” is not significant enough, life insurance may practically not be a necessity or even an option. In a nutshell, a wealthy individual with a lavish lifestyle may be well advised to consider life insurance if s/he has potential beneficiaries for whom the one cares and wishes them not to descend into dismay as a result of that individual’s unexpected death. Otherwise, one should think twice, if not thrice, before purchasing life insurance.
In closing this discussion on insurance and its importance, several general observations deserve to be made. First, except perhaps for health insurance, one ought to think of the necessity of buying an insurance in the first place. That is, the costs of holding an insurance policy should be weighed against the benefits. For instance, an insurance with an intolerably high cost of coverage (high premium) may not be worthwhile holding; nor should one insure an item with a little more than insignificant worth. Second, before purchasing an insurance, it is momentously important to make informed decisions on insurance policies. That many people have little to no understanding of insurance policies before getting a contract or agreement cannot be over-stated; nor does it need any further demonstration. This limited knowledge about and understanding of insurance policies have far reaching consequences as many people end up with poor decisions regarding their choices on insurance coverage to purchase. That is not all, however. Many people usually buy insurance contracts without carefully reading or without really understanding the terms, requirements, and ultimate benefits of the entered agreements. Third, with the prominence of these issues, it is no wonder that many insurers (insurance companies) engage in the insidious practices of shrouding, whereby they display incomplete, misleading, or inaccurate information on the services they provide through their insurance policies. While moral hazard from policyholders is another prominent issue in the insurance business with equally devastating consequences. There is no doubt, these problems could be avoided if all the involved parties in insurance business could make informed judgments about the insurance policies.
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