Answers to Deep Dive Questions
Over the recent years, the number of people applying for insurance has risen steadily. People from around the world need to feel secured from losses or even uncertainty that might arise within the economy. Therefore, to safeguard themselves from the economy’s unpredictability, many people have opted for an insurance policy. According to Chad, insurance means an arrangement by which an individual, State, or company undertakes to provide a guarantee of compensation against a possible eventuality, such as damage and loss (Chad). Since insurance was first introduced, it has developed globally in its commercial form.
Insurance plays a big role in the economy and people’s lives by providing stability to the functioning of the process. One of the main roles insurance plays is providing security and safety. Humans always have a fear of sudden loss, especially in business or when they fall sick. Insurance provides financial support to businesses which have succumbed to certain accidents and reduce uncertainties in human life by providing medical support (Chad). Moreover, insurance promotes economic growth. This aspect is ensured through mobilizing domestic savings and turning the accumulated capital into productive investments. Insurance also acts as a source of collecting funds by the way of premiums. The funds collected are utilised in the development of countries, which increases employment opportunities.
What Insurance is to Me
Many people regard insurance as a social device that protects individuals or businesses from loss, pay for needed healthcare, a source where funds can be accumulated for a child’s education, and a platform where policy holders and beneficiaries can use to build estates. According to Smith, people also think of insurance as an employer since insurance companies employ thousands of agents and representatives throughout the world (Smith). My understanding of insurance stems from the basic root that it is not only a financial institution, but also a firm that provides guarantee to its guarantors by ensuring compensation in case of any loss or damage.
How My Knowledge About Insurance Has Been Enhanced
Before getting a chance to read and understand what insurance entails, my understanding of insurance was quite different. For instance, at first, I thought insurance replacement money is a waste and just a way to make an insurer pay more. After gaining insights on what insurance really is, I was able to understand the difference between replacement cost and actual value cost. Policy holders will always replace personal property with the value that the property holds today, despite that value being different in the past years.
I also thought that my personal finances have no effect on my insurance rate. I did not comprehend why insurance firms needed all of my personal information just for a quote. However, my interpretation changed after gathering knowledge on how insurance firms function. It was clear to me after reading articles and books concerning the subject that insurance companies need use dozens of information collected in order to create a personal quote. Therefore, the more financially stable a policy holder is, the less of a risk they are to the insurance company.
Before gaining much knowledge on how insurance works, I used to think that my insurance company would never know if I lied about something in my application. Contrary to what I knew before, now I am able to understand the need to provide all the information required since insurance companies have now developed ways to uncover things that are always omitted or misrepresented. It is fundamental to disclose all information to the insurance, such as marital status and properties owned. Being caught in a lie would result in a change in one’s policy and would attract fines.
Protecting ones most important assets to create a solid financial plan is very important. According to McLachlan, insurance policy is a contract between the insurer and insured or policy holder, which determines the claims that the insurer is legally required to pay (McLachlan). Among the insurance policies that I have is life insurance. This policy protects financially dependent individuals. For instance, having a spouse and child, there was the need to get a life insurance to protect their future. The life insurance policy would enable my family to be financial stable even after I die. I also have a health insurance. Over the recent years, it has been evident to me that the cost of medical care has been significantly going up. This situation formed the reason as to why I applied for a health insurance. A simple visit to the doctor could cost high amounts. However, with health insurance, the charges might be slightly low, which is beneficial when it comes to savings.
Insurance in My Experience
Insurance is more than just a financial institution. To me, insurance has brought more help than damage in the society. Through insurance, our next of kin are able to benefit from payments. For instance, death, which is inevitable, can lead the insurance company to provide financial health to the people who used to be dependent on the deceased. Moreover, risk has greatly been reduced by insurance. Home insurance is a great example of how risk can be reduced. Through the home insurance, risks such as fire outbreak, burglary, or even natural disasters that can destroy the house, are all accounted for. Therefore, insurance is a good way to protect property and individuals in times of calamities.
Relationship Between Insurance and Economic Development
Insurance companies play a major role in stimulating economic growth. Through insurance, businesses are able to undertake high risks and return on investments, which would not be possible without insurance companies. Besides, investments that involve high returns are beneficial to the economy. Employees might get injured in their jobs and, through the business insurance, the cost of the employees’ recovery is covered, which results in successful business operations.
Insurance that are not used to pay operating expenses and claims are also normally reinvested by insurance firms. Moreover, through government and corporate bonds, stocks, and real estate mortgages, insurance firms are able to use these investments to finance building and construction, and provide support to other development projects around the world (Chad). Firms are also kept operational through insurance even in times of economic depression or recession. Furthermore, insurance provides financial risks to companies that are insured, irrespective of how the economy responds. Through insurance companies, financial protection, risk, and operations of both people and businesses are also catered for. Therefore, insurance companies are important in the economic development of any nation.
Chad, Smriti. “The Role and Importance of Insurance – Explained!” YourArticleLibrary, 2019, http://www.yourarticlelibrary.com/insurance/the-role-and-importance-of-insurance-explained/7540. Accessed 10 May 2020.
McLachlan, Natasha and Laura, Walker. “Commonly Misunderstood Insurance Concepts.” US Insurance Agents, 2020, https://usinsuranceagents.com/commonly-misunderstood-insurance-concepts. Accessed 10 May 2020.
Smith, Lisa. “5 Insurance Policies Everyone Should Have.” Investopidia, 2019, https://www.investopedia.com/insurance/insurance-policies-everyone-should-have. Accessed 10 May 2020.