Personal Finance- Insurance

Throughout one's life, unexpected events inevitably occur. Accidents happen, things break down spontaneously, illnesses occur, and eventually we face death. Ultimately, though caution may reduce the frequency of such events and increase lifespan, the risk of such events will always exist. Insurance - car insurance, medical insurance, property insurance, life insurance- help by compensating us financially for unexpected major events in return for regular premium payments made to the insurance companies. (Car insurance is legally required, at least in California). Possession of insurance helps to provide a degree of security, by guarding us against the risk of severe financial losses resulting from unexpected, often catastrophic, events. We pay insurance companies to take the risk for us; the payments- or "premiums"- are the price the insurance companies demand of us as compensation for this risk. True, given that the insurance companies must make a profit (if only to pay the salaries and operating expenses within the business), the premium must represent an amount greater than the expected value of the company's payout to you. However, given that we are risk averse- particularly if we have family members who may suffer if we incur financial losses- most of us are wise to have insurance, particularly medical insurance, life insurance, property insurance, and the like. Having insurance also allows us to more accurately budget based on our expenses. Our insurance premiums are fairly predictable; we can surely add up the premiums for each of our insurances and determine the total cost of "insurance" for the year. This value is subject to far less variation compared to owning no insurance (except car insurance, as the law requires that), and then having to prepare for each of the possible contingency scenarios of facing unexpected huge medical expenses; having one's house damaged or destroyed in a fire, earthquake, flood, etc.; or laying the groundwork for your family members to continue on in the event of your disability or passage. Thus, it is accurate to say that the primary advantages to purchasing insurance are the security of not needing to fear financial harm resulting from major losses combined with allowing for more accurately budgeting (for a household) based on anticipated expenses, with far less variation than would be the case if deciding to decline insurance and simply "take one's chances."