What is Insurance?

 

Howdy Wall Street Willie. I heard my friends talk about insurance. But what is insurance anyway?

Well, insurance is something that protects you financially against a loss, which means that if something goes wrong, the insurance company will pay you.

Well, what can be covered by insurance?

Anything of value can be covered by insurance. For example, a house, the contents of the house or whatever’s inside the house, a car or someone’s life. Also, piano players – since their fingers are very important – they can cover their fingers with insurance, and soccer players’ legs are very important so they can cover to their legs with insurance.

Ha ha, that’s funny! Anyway, how does insurance even work?

Well, you pay a premium or amount of money to the insurance company, so that the insurance company can pay you if whatever you have insured gets damaged, destroyed or stolen. You also have to file an insurance claim to let the insurance company know that something has happened.

Well, is the insurance really expansive?

It depends on what you insure and the kind of insurance. For example, home insurance that covers fire and theft won’t be very expensive. But if you also add insurance for flooding in a coastal area or area around a river, it can become more expensive.

Does the amount of money that you pay to the insurance company, or premium, change?

Again, it depends on the kind of insurance that you have. Because in life insurance, the premiums usually will not change from one year to another if you have bought it for a long term.

But for other kinds of insurance, like home insurance and car insurance, the rates or premium can change every year. And the insurance premium usually will go up after you make a claim or tell the insurance company to pay you because whatever you have insured gets damaged destroyed or stolen and they pay you.

Well, how long are you gonna be covered for? Like, will the insurance company pay you if something happens forever, or just for a certain amount of time?

Well, the insurance company will pay you for whatever amount of time you have bought the insurance for. For example, life insurance can be bought for many years, but most other kinds of insurance are bought for a year and they’ll need to be renewed or paid again every year.

Who should even have insurance?

Everyone should have insurance. And depending on what you own and whether you have any dependents, you can have different kinds of insurance or multiple kinds of insurance. We’ll cover each type of insurance in detail another time…

Thank you very much for telling me about insurance, Wall Street Willy.

You’re welcome, Sooper Cooper. Remember, finance is your friend!

Podcast: What is Insurance?

11 Key Personal Finance Concepts You Must Know for Financial Success

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