Insurance101 – Understanding insurance & its benefits
Whenever you buy insurance, it’s a contract to transfer your risk to an insurance company in exchange for a fee called the premium. In other words, you pay a known cost(premium) in place of an uncertain future cost(loss/risk).
It does not change the probability of the risk happening, but it takes away the uncertainty around it.
In the most basic form, it’s a group of people placing money in a common fund. When a member suffers a loss (house burns down, burglary, car accident, death), the fund is used to reinstate the person. Pooling funds, sharing risk.
The ‘lucky’ ones never use the fund, the ‘not so lucky’ ones are happy it was established.
If one person regularly comes to take money from the fund (makes claims), it’s just fair the person is made to pay more, otherwise, the others feel cheated.
Hence, we say someone is a high-risk client, therefore, pays a little more.
On the other hand, if we all come to take money from the fund, we all need to pay a little more to sustain the pool for the year ahead.
Obviously, there must be someone collecting the money, investing it well for good returns, pay (a member of the fund) when there is the need(claim).
That someone is the insurance company; GLICO, Vanguard, Allianz, Starlife, SIC, etc.
In Ghana, they are regulated by the National Insurance Commission(NIC).
One might ask, but why must I buy insurance for myself or my business?
The Benefits; Why You Must Buy Insurance
When you buy insurance, you are buying a promise. And we all know it’s more difficult to buy a promise as compared to a physical product. A promise says “If X should happen, I will do Y”.
But if I walk into a Toyota showroom, I drive out in my sleek Toyota Corolla after payment. No long things.
Individuals, organizations, and society benefit from insurance in more ways than the average person knows. Some of the benefits of insurance are very obvious while others are not.
As a gentleman on Facebook, Nana Kobina Addo said “Insurance is good. You only see the benefits when you are in need. Without this need, you say ‘Insurance is waste’ ”.
He couldn’t have put it any better.
Another friend, John Adabie said “If you think about the premium you are going to pay for the year, you may think that you are being cheated. However, when a disaster occurs, then you realize that, there is something to cater for you. It’s a risk venture but good in the end”.
Some insurance policies are legal requirements hence people sign up amidst murmuring. Examples of such policies are Motor Insurance and SSNIT Pension Policy for all workers.
Does your employer pay your SSNIT contributions?
Understanding these key benefits is very critical when considering the need to buy insurance.
Insurance gives peace of mind
The first and most important benefit is the peace of mind it brings.
If you don’t have to worry about any uncertainty, that is true peace of mind.
Life can be cool and cosy, then without a sign, boom! Something tragic happens; motor accident, factory fire, burglary, death etc.
These incidents distort the relative peace one might be enjoying.
But when there is an appropriate and active insurance cover, the distortion is for a limited time. The insured is reinstated as soon as possible.
Insurance ensures business stability and continuity
A truck full of goods involved in a motor accident is a common scene on the Tema Motorway, Accra-Bolgatanga, Accra-Ho, Accra-Takoradi, Accra-Kumasi routes. If these vehicles are insured and the goods have an active Goods-In-Transit cover, these accidents are nothing to worry about.
Imagine a manufacturing company with about 1, 500 workers brought down to ashes by fire. Without an appropriate and active insurance cover, it might take forever for such a factory to pick up again.
With the right insurance, business stability is assured.
No matter the accident, business is back on its feet in a few days.
You would agree with me that insurance is more important for SMEs. They are likely to have smaller financial muscles.
Some Life insurance policies come with added features like Partial Withdrawal or a Short Term loan facility when need be.
For someone with no property to use as collateral, it’s obvious the traditional banks can not assist. But a policyholder in good standing can use the premiums paid as collateral for a quick loan.
Insurance reduces the social burden
By compensating individuals when they are bereaved, when there is an injury resulting from an accident, society is saved from the financial burden that comes with these incidents.
Our Facebook walls are sometimes awash with people seeking financial support for various life issues. For example, a veteran actor seeking financial assistance to support their livelihood or get medical attention.
If they were on a good pension policy or health insurance, we wouldn’t get here as a society.
We see sick people in need of thousands of cedis for surgery.
Had there been a great health insurance policy for all and sundry, who would embarrassingly be begging for money to get medical attention?
Insurance helps families withstand shock
Someone jokingly said some families cry more not because of the demise of a member but the money to spend on the funeral. That has some degree of truth.
When the main benefactor is no more but he/she was on some good insurance policies, the family does not really feel the financial shock. The pain of a loss is however not underrated.
Imagine a family man with insurance for the kids’ education, life insurance with an investment component, SSNIT and all the other Tiers in good standing.
When such a man is unfortunately late, his family is able to withstand the shock easily as compared to someone who was just living an “I don’t care” life.
Insurance creates jobs
This point is quite straightforward. The insurance industry has provided jobs for thousands of people, both directly and indirectly. These employees spend on goods and services, pay tax and support their families.
These people include but not limited to Claims Adjusters, Investigators, Accountants, Auditors, Insurance Sales Agents, Secretaries, Administrative Assistants, Drivers, Security Personnel, Cleaners, and Dispatch Riders.
Remember the top hierarchy like the Chief Executive Officer, Directors of Finance & Administration, Business Development, Human Resource, Operations, etc.
Service providers like printing companies, office equipment suppliers, furniture suppliers, etc
In our next episode, we are looking at some mandatory insurance policies an individual, group of persons or company must-have.