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The roots of insurance can be traced back to Chinese and Babylonian traders in 3rd and 2nd millennia BC. People use insurance policies to reduce their own personal risk. Nobody knows if something bad will happen or not but most of us like to know that we are prepared if it does happen. With inexpensive items, such as a microwaves, most of us would be able to pay for any repairs from our own pocket. We are less likely to be able to do this for expensive items, such as our house. An insurance policy allows us to pay a small fraction of the value of something, in return for knowing that if something does happen to it, the insurance company will pay the value of it. It is there to provide peace of mind. The insurance companies do not do this for free. They obviously calculate the premiums to ensure that they make a profit. Insurance is a vital part of the world economy, allowing risk to be spread and providing confidence to entrepreneurs.
It is important to note that not all insurance contracts are the same, even if they insure the same item. They can have varying qualities of cover and it is important that you choose the right policy to meet your needs. As an example, critical illness insurance provides a payment if you are diagnosed with a critical illness. However, different companies cover different types of illnesses and they also have different definition of the illnesses and different claims history. It is important to "look under the bonnet" with insurance policies to see what you are getting.