Why are insurances so important?
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Have you ever tried to go to a doctor or dentist and pay out of pocket?
Insurance allows you to eliminate/minimize risk. Instead of MAYBE needing to pay a lot of money to replace something expensive, you can pay a little money every month to ensure that you won’t need to pay that big expensive if something terrible happens. That makes your budgeting and expenditures much more stable and predictible.
There are many situations where a sudden large expense can happen, and that might become a problem
For example, damages from a minor car accident can easily go into the hundreds of thousands of dollars, which most people don’t have that much just sitting around in liquid assets.
Because they’ve been codified into many of the rules/regulations of life.
Want to drive a car? You must have insurance. (Or qualify for a special exemption by proving to the government that you’re filthy stinking rich.)
What to run a business? You must have insurance .
What to own a home? You must have insurance.
Everyone else did a good job of explaining what insurance does, but the real truth of why it’s important is because you just can’t do certain things without it, either legally or otherwise.
Large expenses in things like Medical Care are unpredictable.
Insurance is about reducing that risk. If you get into a car accident for example and suffer a severe injury, you can’t predict that. If you are uninsured they will still care for you but an ICU visit will will cripple you financially for life.
Let’s take for example liability insurance.
You bet again the insurance company.
You say I am go na break something expensive one day.
Insurance company takes that bet and bets against it.
You pay a fee and as long as you don’t break anything, they basically win.
You break something they loose and have to pay.
They protect you from financial loss you cannot pay. They are often required to protect assets you are financing, protecting the lender from loss.
Say you own a house or a car… if your house burns down or you crash your car into somebody’s Porsche, you likely don’t have the assets to rebuild your house or pay to replace the other person’s car and your own. So better to pay $1000/yr for insurance than risk a six-figure cost you cannot afford.
Imagine a lottery. The prize is a million dollars. But if you’re the chosen one, you don’t win that money but you lose it. It’s like the anti-lottery. And you’re *forced* to play.
Life is full of situations like that. So we, the society, came up with the idea of everyone paying a little into a fund so the one that has the misfortune of being the winner of the anti-lottery can pay for it. That fund is the insurance, being public (government-run) or private (company-run). How much you pay, how much you can take if something happens, and which situations let you take something… that’s another story, because what is or isn’t insurance varies from society to society, particularly if we argue that some government programs are like an insurance.
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