Why is insurance needed in daily life?

Answer 1

So you have some money when things go wrong, for example you have money to replace property when it is stolen.

Insurance is purchased to protect you from a catastrophic loss when you KNOW you wouldn't be able to afford the loss...for example, health event/condition such as serious accident/stroke/cancer/heart attack and everything in between that would cause you to be out of work temporarily or permanently, home fire that burns down half the home, car accident that could be $4,000 to a total loss, death and now family is on the street, property stolen, business liability when someone sues you...etc... These things are so expensive to simply "self-insure" (meaning you just cover it using your funds from your bank account) to cover the loss & get back to the place you were BEFORE that event.

You pay a very small amount of money for the promise that a LOT of money is pledged in the event of a covered loss. You pay $100 a month for auto insurance that could pay thousands or tens of thousands of dollars back to you or on your behalf. You know you typically wouldn't have been able to afford it on your own.

Another example is health insurance where you pay $500 or more per month to cover about everything that could happen to you. You could have a $80,000 surgery just to deal with an internal issue. Who could really afford that?

I know insurance seems like a black hole where you spend money with no return, but without it, you could be bankrupt with a very minimal event MANY times during your life. Think of every accident, health issue or other items your insurance covered...not many people can simply go without insurance.

Hope this helps...