Insurance is a safeguard against unfortunate and unforeseen events. It is a strategic way to manage various risks. Insurance companies offer individuals or policyholders protection from potential losses in exchange of payments called premiums.
Aside from guaranteed coverage, what are the honest reasons why people buy insurance? On the flip side, what are the insurance company’s objectives as they offer their services?
OBJECTIVES OF INDIVIDUALS
As you age and progress along the stages of life, you become more and more aware of how necessary insurance is. A number of factors may lead to this realization such as seeing your elderly parents and starting your own family. While you know that you are supported by your CPF account as well as your Medishield Life, you can realize that it may not be comprehensive enough to meet your lifetime needs. This can serve as your wake up call to evaluate your present financial situation and plan for your future and that of your loved ones.
The exact reasons why people buy insurance is unique and highly subjective. However, here are some of them:
a. Worried about critical illness – consider health insurance.
b. Worried about permanent disability – consider life or term insurance.
c. Concerns about the loss of belongings – consider general insurance.
d. Concerns about death (as a breadwinner)- consider life or term insurance.
OBJECTIVES OF INSURANCE COMPANIES
Nowadays, insurance companies offer a wide array of insurance products and policies that cover areas from property, health, and travel. Insurance companies must satisfy certain objectives to effectively function and meet their clients needs. Before purchasing one, know some of their objectives:
a. Pooling Money
By collecting premiums from a number of individuals or businesses, the insurance companies are able to pool their money together. They then pay out for the relatively few claims filed each annum. Keep in mind that majority of the policyholders do not file claims over the same period.
b. Financial Competence
Another objective is to ensure the policyholders that they are financially stable. Once one or more policyholders report that they were not duly compensated, society’s confidence in the system may be gone.
c. Influencing Behavior
One of the most important aims of insurance companies is to reward and promote responsible behavior. For instance, individuals with lower records of vehicular mishaps are more likely to be quoted with a lower car insurance premium than those with unsafe driving records. Rewarding safe driving practices can increase the likelihood of such desirable behavior.