But even if you never submit a claim, insurance is an investment in your future, as important as pensions and personal investments. Indeed, many financial planners argue that you should have an adequate insurance safety net in place before considering investment strategies. The function of insurance is to protect you against losses you can't afford. As the insurance consumer, you pay an amount of money, called a premium, to the insurer to transfer the risk. The insurer pools all its premiums into a large fund, and when a policyholder has a loss, the insurer draws funds from the pool to pay for the loss.
Life is full of unexpected events that can create large financial losses.
For example, whenever you drive, it is possible that you may have a costly accident. Risks affect you by causing worry about potential loss and how to deal with the consequences. Insurance reduces anxiety over a possible loss and absorbs the financial brunt of its consequences. However, while insurance coverage is essential, how much and what type of insurance people need differ with each individual. You must decide how much risk you're willing to tolerate without insurance.