The Role Of Life Insurance

Insurance is one of life's necessities and probably the least-understood financial product. Insurance reimburses people for covered losses in the event of an unfortunate occurrencesuch as an illness, accident, or death. At the same time, itcan encourage prevention and safety measures, provideinvestment capital, lend money, and help to reduce anxiety for society at large.
As a mechanism against loss of income and a means of safeguarding assets, most Americans have insurance in one form or another. These coverage's may include public coverage, such as disability insurance under Social Security, a health care policy from an employer, or personal insurance to protectproperty such as computers, homes, and cars.
You may save money in yourpension and other investments and have capitalin your home. But if you don't know exactly what your life insurance policy covers or have only glanced at your employer-provided health and disability insurance policies, you're neglecting an important aspect of your financial plan.
Until something happens, such as a car accident, an illness, or the death of a loved one, paying for insurance may seem like buying something you'll never use. But even if you never submit a claim, insurance is an investment inyour future, as important as pensions and personal investments. Indeed, many financial planners argue that you should have an adequate insurance safety net in place before considering investment strategies.
The function of insurance is to protect you against losses you can't afford. This is doneby transferring the risks of a person, business, or organization -- the "insured"-- to an insurance company, or "insurer." The insurer then reimburses the insured for "covered" losses - i.e., those losses it pays for underthe policy's terms.
As the insurance consumer, you pay an amount of money, called a premium, to the insurer to transfer the risk. The insurer pools all its premiums into a large fund, and when a policyholder hasa loss, the insurer draws funds from the pool to pay for the loss.
Life is full of unexpected events that can create large financial losses. For example, whenever you drive, it is possible that you may have acostly accident. Risks affect you by causing worry about potential loss and how to deal with the consequences. Insurance reduces anxiety over a possible loss and absorbs the financial brunt ofits consequences.
However, while insurance coverage is essential, how much and what type of insurance people need differwith each individual. You must decide how much risk you're willing to tolerate without insurance. For example, benefits for disability policies typically begin after a waiting period of one to six months. Therefore, you should ensure that you have some form of coverage or financial resources before the policy period begins.