What Is Insurance and Why Is It So Important To Society As A Whole?

The Sarrica Group, Inc. has written this article to help answer that question. In its simplest form, insurance is a promise that if you ever suffer from a loss or peril that you will be financially reimbursed by an insurance carrier. Insurance revolves around the Principle of Indemnity which is to compensate or secure the policyholder in the same financial position prior to the event of a loss. In other words, the purpose of insurance is to help make the named insured financially whole again after a peril.

The problem arises when clients undermine the significance of insurance since insurance policies are an intangible product. Unlike a car, jewelry or a house, you can't physically see or hold the value of an insurance policy. The true value of insurance lays in the financial security and peace of mind that you obtain knowing that your property and well-being is protected after a catastrophic event.

Now that we've explained the concept of insurance let's discuss the five reasons why insurance is essential to our society:

It Promotes Commerce and Investments Within Our Economy
Insurance has been a vital part of our society for centuries and can be dated back to the year 1343 when one of the oldest insurance contracts in recorded history was signed in Genoa, Italy. This was a marine policy that revolved around the concept of bottomry, which allowed local merchants to finance their shipping expeditions through loans from various lenders. These loans were fully paid, with interest once the ships had safely arrived. However, if these goods were lost overseas, they didn't have to pay a for the peril. Essentially, this was a way for merchants to cover their risk exposures for a premium.
Insurance has since become an instrumental tool in promoting commerce and investment opportunities within our society. An example of this in today's society would be mortgage lenders that require proof of insurance prior to buying or constructing a new building. Potential investors may also require evidence that your company is sufficiently insured before investing in your business. To get the money that your business needs to continue its operations, it's likely you'll need an active business insurance policy before getting a loan. Without insurance, your winning business model can't get the funding it needs to take its first step, or your established business model can't get the funding to evolve and better compete. The presence of an insurance policy protects the investors and mortgage lenders should damages occur in the building or if there are any lawsuits held against the business.

Essentially the presence of insurance enables mitigation of losses, financial stability and promotes trade and commerce activities that result in sustainable economic growth and development
Insurance is Compulsory and Required by Law
Insurance is required by law and is mandatory for both individuals and businesses. An example of this would be Auto Insurance or Workers' Compensation Insurance. These types of insurance policies are designed to help protect accident victims against the costs of recovering from an accident that a driver or an employer has caused.
Provides Family Stability
Most people will agree that there is nothing more important than family. However, what happens when a family member dies or gets injured in an accident and is no longer able to bring in a steady income to the household? The well-being of a family is essential to everyone, and the health of family members and loved ones is the biggest concern for most. However, medical treatment and medicine prices are continually rising. This can prove to be enough to drain your savings if not well prepared. The reality is anyone can unexpectedly fall victim to critical illnesses (such as heart attack, stroke, cancer, etc.) Medical Insurance is a policy that protects individuals financially against various types of health risks. With a Health Insurance policy, an insured can also get financial support in case of a medical emergency.
Peace of Mind
As discussed earlier in this article, insurance revolves around the Principle of Indemnity which states that on the occurrence of a loss the insured shall be put back into the same financial position as he/she used to occupy immediately before the loss. Even though in essence insurance is an intangible product it does provide a sense of financial security for both policyholders and potential investors. Insurance allows for a policyholder to transfer the risk of loss to insurance companies, so you can drive with a peace of mind knowing that you're covered should you ever get into an accident.
Insurance is The Right Thing To Do
Back on April 17, 2013, it was reported that a chemical explosion occurred from ammonium nitrate at the West Fertilizer Company storage and distribution facility in West, Texas. The explosion caused by West Fertilizer Company did $100 million in damages to the community, including schools and hospitals. However, the fertilizer company had only $1 million in general liability coverage. The company did not have sufficient insurance coverage to not only help repair the property damages to the local community, but also the injuries and deaths that the explosion had caused.

Additionally, the city also ended up filing lawsuits against the suppliers to West Fertilizer Company, claiming that they knew they were supplying inherently dangerous and toxic materials to the corporation. In the case of the West, Texas, plant explosion, insurance could have helped a community to recover after a crisis. Obtaining sufficient insurance coverage is just the responsible thing to do.