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Insurance Explained



Simply put, we all need insurance, whether we like it or not. Insurance protects you and your family from financial disaster by protecting you against serious, and unforeseen, loss or injury that you could not otherwise pay for. Without insurance you would not be able to lawfully operate your car, obtain a mortgage to purchase a home, or have the freedom to operate a business without the risk of having one disaster potentially destroy you financially.

The insurance system works by using the payments of the many to cover the losses of a few. Money is collected from a large number of policy holders and placed in a pool. This money is then used to pay for covered losses. Since only a few policy holders will have a large loss there is normally enough money in the pool to pay all losses in a given year. To help ensure there is enough money in the pool, Insurance companies buy their own insurance, called re-insurance, which helps pay for large losses and regional disasters.

A common misconception is that insurance policies cover all misfortunes that occur. If that were the case, no one would be able to afford the premiums as they would have to be so high to pay for all of those losses. Insurance is not intended to be a maintenance policy, nor is intended to pay for normal wear and tear. It is intended to protect against serious, and unforeseen, loss or injury that would be financially devastating. The list of covered losses in a policy is known as 'insured perils". It is important to read your policy and understand your coverages.