Insurance is a contract between a person or entity and an insurance company, wherein the insurance company will compensate or cover losses for the person or entity in the case of an unforeseen circumstance occurring. The contract itself takes the form of a policy, which spells out specifically what the insured is covered for and what the insurer is willing to pay. Insurance can take many different forms from life insurance, health insurance, property insurance, etc.
How are insurance premiums calculated?
According to Investopedia, using life insurance as an example, the premium “depends on statistical data that exists about the life history, age, and health.” Insurance companies basically look at the potential risk factors of whatever is being insured and come to the premium required for coverage. For instance, a kid in high school driving a Mustang will likely pay a higher auto insurance premium than a middle-aged man driving around a Volkswagen.
Do you need insurance?
Unless you have an endless supply of cash falling out or an oak tree in your backyard, yes, you need insurance. Let’s say you have a prescription for some ailment that needs to be picked up from the pharmacy. Prices for medication can be in the thousands without insurance. This is assuming you have the money to pay for labs and doctors’ visits on your own in the first place.
There is one aspect of your life that requires insurance. Driving a car. Technically you could purchase a vehicle without insurance, but you couldn’t remove it from the lot. But assuming you’d like to move the vehicle around town for your personal transportation with you behind the wheel, insurance is required to do so.
Insurance is actually a means of saving you money. Yes, you pay a premium, but the potential cost of paying out-of-pocket for situations you had no control over and didn’t see coming is just unwise and not worth it. Spend a little money and live life knowing you are secured and won’t be financially cut down because of prescription-grade Tylenol.