We all own insurance. Whether it's auto, medical, liability, disability or life, insurance serves as an excellent risk-management and wealth-preservation tool. Having the right kind of insurance is an important component of any good financial plan. While most of us own insurance, many of us don't understand what it is or how it works. Let's start with the basics.
What exactly is insurance?
According to the World English Dictionary, insurance is : the act, system, or business of providing financial protection for property, life, health, etc, against specified contingencies, such as death, loss, or damage, and involving payment of regular premiums in return for a policy guaranteeing such protection (http://dictionary.reference.com/browse/insurance).
This basically means that insurance is a way to transfer the cost of a potential loss (ex. damage to your car from an accident) to someone else (insurance company, ex. Farmers) in exchange for monetary compensation (premium). You pay a small amount each month/quarter/year to the insurance company to protect you in case you do have a loss. It is a promise that if you pay your premium and you have a loss that the insurance company will protect you according to your agreement, coverage and limits in your policy. It is intended to get you back to where you were before the loss, not more or less. Of course each claim and situation is different which we will get into later on.
These are some of many reasons why people get insurance:
Stay tuned for more information on the different types of insurance policies and helpful tips. Comments are much appreciate!