Wealth

The Action of Protection

May 11, 2008 , 0 Admin

Overview: Many people have always heard of insurance. They have often encountered the word from stubborn insurance agents always wanting sell those insurance plans for a commission or two. But what really is insurance and how is it used?

Protection in the world of finance is tantamount to having insurance.  If investments help one grow one’s assets, insurance helps one protect those precious assets.  Where is the reason behind this? Why does one need to protect assets?  Assets are things or persons of value and they represent what a person considers as wealth. Let’s look at some examples.  This could be a person’s life, his houses, his cars, a body part, his entire body, his job, his business, his jewelry, his investments, or even his loved one. All these things constitute things which a person values. And the loss of any of these has a great impact on a person’s life and the way he enjoys his life.

The job of an insurance plan is to make sure that when something unforeseen like an accident happens and triggers a loss of a valuable asset, the insurance company covers for this loss if it means a certain criterion by replacing it with something of value. This may be the same value as the asset or even less, but this depends very well on the plan holder’s discretion. And in most cases this represents an amount of money.

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Like a house worth five hundred thousand dollars can be insured for four hundred dollars.  At least when the plan holders claim this insurance and get some cash out of it, they can use that money to rebuild another house.  Hence, they will always have a back up on having a house they can call their own.  Or if in the case of a business, one can use the money to rebuild a business if something like a fire destroys it. Hence this protects the source of income. synthroid tightness chest

For the case of insuring a life, it doesn’t mean replacing a person’s life with another life. That would be absurd. But if that person is a breadwinner, then a family could be losing a source of income if a horrible death results from some kind of unforeseen accident. Now, I just have to make it clear. No amount of money could ever replace any person’s life. But it would be practical and it would be a good financial strategy to have insurance for the breadwinner of a family.

A tricky situation would be to compute for the actual insurance amount. But a simple rule would be to make sure that it at least covers all the lost value as if that assed still existed up to the day it was meant to be operational or it could just be whatever a person can afford. And the price of protection or insurance increases as the risk of loss increases. For life, an insurance plan increases with the age of the insured person as older people have statically more chances of dying. I’m sorry to be that blunt. But that’s the logic behind it.

To end this, it would always be best to consult with a trustworthy accountant or financial planner regarding insurance coverage and affordability.