Do We Really Need Insurance?

True story – a friend of mine bought himself a bright, shiny new car with a powerful V8. He scoffed when I advised him to take out comprehensive motor insurance. His reasoning was simple: he would be the only one driving the car, and he’s a careful driver. Also, if the car were ever to sustain any damage or breakdown, he could easily handle the repairs at his garage. A few weeks later, he was involved in a serious accident. Fortunately, he escaped with barely a scratch. However, his precious car was completely written off – an undrivable, unsalvageable, a twisted metal sculpture of scrap.

Many of us think about insurance the same way my friend did, as an expense that we can avoid, or as a non-issue that we don’t think about until we’re in desperate need of it. We convince ourselves that nothing will go wrong, trusting that the universe or higher power has our backs, and everything will work out for the best. Unfortunately, life doesn’t always go to plan, and while hope does wonders as fuel for the human spirit, it is not a viable strategy as a financial safety net.

Insurance exists to protect us from financial shocks that would otherwise affect our health, income, assets, our families and loved ones. Deep down, many of us already know that we need to have insurance, but we don’t actually know how it works. Think of insurance as a protection club, where members contribute money into a common pool through annual payments known as premiums. The amount each person contributes to the club depends on the type and level of risk they want covered. In the event that a member suffers a loss covered by their insurance plan – such as: an accident, illness, theft, or property damage – they can approach the club for compensation. This payment is known as a claim.

One of the most popular forms of insurance is medical insurance. It helps cover healthcare expenses such as: doctor visits, medication, tests, and hospital stays. The cost of coverage typically depends on factors such as age and the amount of cover selected. This works with an insurance card which is why most people find it easy to buy. Nearly all other types of insurance work on a refund basis when an incident occurs. For example, if you want to protect your loved ones against the financial impact of your death, consider taking life insurance. However, if you are seeking reimbursement in case of an injury or disability due to an accident, get personal accident insurance.

Similarly, our assets also need protection. If you own a vehicle, comprehensive motor insurance can protect you against losses arising from accidents, theft, and other covered events. If you own your home, a domestic insurance package can help protect both the building and its contents. There are a variety of specialist insurance products designed to cover a wide range of personal and business risks including travel insurance and professional indemnity.

Please note that insurance only works when the correct information is provided, and you aren’t trying to scam the insurer. That being said, when you’re purchasing a policy or processing a claim, ensure that you accurately disclose all relevant details as required by the insurer. This will help prevent complications when you’re making a claim.

At its core, insurance isn’t about expecting the worst, but preparing for the unexpected. The goal isn’t to profit from misfortune, but to avoid the financial fallout that occurs when life surprises you in an unpleasant way. So, before you dismiss insurance as an unnecessary expense, I ask you one simple question, “Can you comfortably afford to start over tomorrow, if you lost everything?”

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