Purpose of Insurance

Purpose of Insurance

What is insurance and why is it important?

The major function of P&C insurance... is simply to restore your property and possessions or business to the point it was before the insurable incident occurred, to re-establish normalcy in your life.  The economic structure of the insurance industry is built around a system in which the cost of the losses of the few is shared among the many. Insurance can be viewed as a large pot into which all premiums are placed. The pot has to provide for payment of the losses of those who have claims, the cost of running the business, plus a reasonable profit for the provider.

Insurance is all about managing risk and providing financial compensation in the event of a loss.  Generally, the risks people face fall into the following categories:

Personal risk

People are their own greatest asset. Financial loss will almost always accompany the loss of one’s health or life.

Property risk

People will incur a financial loss when owned property is destroyed or damaged.

Liability risk

When people’s action result in injury or damage to others, the law generally provides that they be held financially responsible.

In Canada, an insurance policy can be purchased directly from a company, from an insurance agent of a company, or from an insurance broker who advises you on your appropriate coverage and shopyour behalf among a choice of recommended providers.

The Purpose Of Life Insurance

Your need for life insurance will vary with your age and responsibilities. The amount of insurance you buy should depend on the standard of living you wish to assure your dependents. You should consider the amount of assets and sources of income available to your dependents when you pass away. Social security benefits, available cash and other sources of income and investments may not provide the standard of living you have in mind. Life insurance helps bridge the gap between the financial needs of your dependents and the amount available from other sources, is the amount to be provided by life insurance. Your agent or other financial advisor can help you with these calculations. The Internet, as well as many financial magazines, books and articles are available to help you as well.