1.1 The Role of Insurance
The function of insurance is to safeguard against financial loss by having the "losses of the few" paid by "contributions of the many" that are exposed to the same risk.
Insurance companies invest premium dollars collected annually in a wide range of investments. Therefore, it is easy to see how the insurance industry plays an important role in our nation's economy.
In this opening lesson, we will come to understand just what insurance can do for us all. The term "if you want to get to the top, you must start at the bottom" comes to mind. We'll look at the very basic role insurance plays in our lives and in the lives of our loved ones. What purpose does it serve, and what purpose can it be designed to serve?
The true value of insurance lies in its ability to protect human life values.
The true significance of insurance is its promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security.
Insurance: Financial protection against loss or harm - An arrangement by which a company gives customers financial protection against loss or harm such as theft or illness in return for premium payments.
The Florida study manual defines the purpose of insurance in the following manner: "...to provide economic protection against losses that may be incurred due to a chance happening or event, such as death, illness or accident."
An insurance policy is a legally binding contract, and every policy contains the following promise and obligation:
"Whereby, for a set amount of money (the premium), one party (the insurer) agrees to pay the other party (the insured or beneficiary) a set sum (the policy benefit) upon the occurrence of some covered event."
Life insurance is based on actuarial or mathematical principles, whereas health insurance is based on scientific principles. In other words, life insurance relies on specific calculations and health insurance relies on ever-changing medical expenses.
Annuities, on the other hand, can be designed to provide a stream of income for the annuitant's lifetime or for a specified period of time, depending on the type of annuity purchased.
