Low Cost Term Life Insurance, Insurance Policy

From crossing the street, to purchasing a new home, to traveling on an airplane, we all face risks daily. We've found ways of avoiding or minimizing certain risks, but it isn't possible to avoid them all. Some risks are trivial, like feeding and burping a baby after work while still wearing your suit. Other risks are significant, like the loss of a house, auto or income due to disability or premature death. Proper risk management is essential to securing your financial future.

This means effectively using insurance to protect against events that would significantly impact your financial future if they occurred.

Insurance is the means by which you secure protection for yourself and your family against unforeseen circumstances. Auto insurance helps protect you from financial loss on an automobile due to accident or theft. Health insurance provides financial support for medical-related costs. Life insurance is designed to protect your dependents from a sudden loss of income caused by your untimely death.

Insurance is a way of transferring risk. In the face of a possible loss, an insurance plan shares the cost of the loss among a group of people facing a similar risk. In this way, none of the participants bears the entire cost alone. For example, consider a neighborhood of 400 houses in which, on the average, one house burns down every year. If the cost to replace a house averages $200,000, then the cost of that loss—spread out among all the homeowners—averages only $500 a year.

The purpose of an insurance company is to organize this risk transfer. Continuing with the previous example, an insurance company would collect a large enough premium from each homeowner to cover the aggregate annual loss of $200,000. By adding somewhat to the premium, and by building and maintaining a cash reserve during years when no houses burn down, the insurance company can also cover the less likely eventuality that two or more houses burn down in the same year. Following a loss, the insurance company is then responsible for validating and paying the resulting claims.