Certainty in life is something we can't take for granted.
In fact, uncertainty causes us anxiety and frustration if it involves our hard gotten wealth, income, and more so, our life and health.
Sensing a need for which people are willing to pay money in order to fulfill is one aspect of the interdependent economy and society we now belong to.
The inherent risk arising out of this uncertainty is responsible for the creation of what we now know as Insurance.
Insurance has been around for longer than we think.
From Ancient times till Medieval, risk was transferred from one individual or group to another after payment in cash or kind.
The transfer of risk is not new but a well established one.
Insurance, as we know it today, is but a formalization of those processes and what we see today is an evolved version of what has been around since economic commerce became a part of daily lives.
The underlying principle in all types of insurance is the same.
An insurer offers on payment of usually a periodic sum called a 'premium' to insure a payer of the risk in cases of an improbable event in a particular time and place, for example an accident policy will repay you the damage caused to your car in event of an accident.
Likewise, risk is involved in almost every aspect of our lives; while we travel, when we get sick and can't go to work, when fire breaks out in our houses, or our pet gets sick and dies, and most of all, if we pass away and the rest of a family have to fend for themselves for a living.
Of course, the variety of what can be insured is endless and is only limited by certain parameters i.
e.
it has value in monetary terms and is held in value by the insured.
I other words, we avoid bigger losses by tolerating smaller losses in the form of premiums.
Similarly, insurance companies, by taking many premiums, create enough of a loss and profit ratio to tolerate payment of large sums.
Companies inevitably try to charge the largest possible premiums and have a mechanism to assess the same.
Statistics and probability are factored to estimate the chance of the risk event happening.
For example, if you have an old car that has already had a few bumps, it's likely you will be charged a high premium for it, and the opposite with a new car.
Similarly, a person with a bad medical history will have to pay more than that of a healthy person.
In this way, factors that increase the risk consequently increases the premium cost.
Insurance can therefore go into sub-specialties like specialist car insurance or temporary car insurance in order to lessen premium or shorten their payments.
First lesson learned is to make sure what type of insurance you really need and whether you want to part with your money to transfer risk.
Second, the fine print must not be ignored because that's where vague details and conditional clauses are detailed.