Why insurance is important

Insurance is important because it a protection for you and your family. If you were to die your family could move on with the help of your insurance. By using insurance, you are moving risk to insurance companies. With health insurance, you are moving the risk of having to pay your medical bills to insurance companies.

How do insurance companies make money?

Insurance companies charge you premiums for the protection. You can pay the premiums in several ways which depends on your preference. You can pay monthly or annually premiums. Besides from premiums, they also make money from their investment. An insurance company’s reserves are used for investing. They can use the money to buy stocks, bonds, or other financial assets.

Insurance company use the money to pay policy holders when a certain event occur which is stated in the policy. If nothing happen, they will keep the money.

In order to profit, they need to statistically measure the amount of risk involved in their insurance products. Although you only pay $500 for your insurance, you can get $5000 if a certain event occurs. Of course this does not happen to all their clients. That’s why they need to calculate the risk.

Types of insurance

There are many types of insurance. Each of them protects different things. There are life insurance, health insurance, home insurance, auto insurance, property insurance, travel insurance, credit insurance and many more. Basically they can create any kind of insurance which they think people will buy to share their risk.

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