Insurance is a system to prepare for various risks (dangers) that occur in everyday life.
The risks are endless, including unforeseen events such as illness, injury, death, and accidents, natural disasters such as fires, typhoons and earthquakes, liability for damages to third parties, and disadvantages incurred in business.
However, it is often difficult for individuals to deal with such risks on their own. Therefore, insurance collects a certain amount of insurance premiums from people who feel the same anxiety and prepares for unforeseen circumstances. And in the event of damage, it is a system that allows you to receive insurance money from the collected funds.
To reduce people’s risk under such a system of mutual aid, “all for one, one for all.” This is the outline of the insurance system and its social role.
Beyond insurance, there are several other ways to prepare for risk. Saving money is one way to do that. However, in the unlikely event that you suffer damage (economic loss), savings can only be covered within the savings amount. On the other hand, insurance is a system in which many people contribute insurance premiums and compensate each other. Therefore, you can get the amount of compensation equivalent to the emergency situation. For this reason, it is said that savings are a triangle and insurance is a square.
Below, we’ve put together a comparison of some plans and insurance that can help you prepare for risk. Through this comparison, I think that the characteristics unique to insurance will emerge more clearly.
What is the difference between insurance and mutual aid?
In contrast to insurance, which covers an unspecified number of people, mutual aid covers people who are limited to specific regions, occupations, members of public organizations, etc.
What is the difference between insurance and derivatives?
While non-life insurance does not pay more than the actual amount of loss, derivatives pay a pre-agreed amount regardless of the actual amount of loss. Property and casualty insurance requires an assessment of the loss,
whereas derivatives are paid out relatively quickly once the contingent event occurs.
What is the difference between insurance and mutual funds?
Insurance is a system to compensate for damage (economic loss) caused by unforeseen accidents, etc., and the insurance amount is fixed at the time of contract. Investment trusts are systems that attempt to generate profits by investing and managing funds.
Classification of insurance
Insurance is classified according to commercial law and licensing arrangements as follows:
Third-sector insurance refers to insurance that does not fall under either non-life insurance or life insurance.
First sector (unique sector of life insurance)
Insurance that promises to pay a certain amount of insurance money for the life or death of a person and pays premiums.
Second sector (unique sector of non-life insurance)
Fire insurance, automobile insurance, liability insurance, marine insurance, etc. Insurance that promises to compensate for damage that may occur due to a certain accident and pays insurance premiums.
Accident insurance, medical insurance, cancer insurance, nursing care insurance, etc. Insurance that pays insurance premiums and promises to pay a certain amount of insurance money or indemnify damages for physical injuries, illnesses, and nursing care.
Difference between savings and insurance
Savings is a way to prepare for “sudden events” and “predictable events” by depositing money with financial institutions.However, savings cannot adequately deal with large risks (such as bodily injury accidents caused by motor vehicles).You can only use up to the amount you saved
However, if you use insurance, you can get a large amount of protection (compensation) from the time you pay the premium. As shown in the figure, it is said that “savings are triangles and insurance is squares”.
(1)This is a method of coping with risks for large corporations, etc. that own numerous vehicles, buildings, and ships, etc.,
By making reserves in advance within their own company. However, it differs from insurance in that the risk is not spread over a large number of companies.
(2)The guarantor oblige will suffer damages if the obligor defaults, but the guarantor, who is a third party
will provide the obligor with the obligation to be performed by the obligor. It is a system to bear the cost.
(3)It is similar to insurance in that a third party assumes the risk of another person, but unlike performance guarantee insurance and mortgage guarantee insurance.
A large number of participants are gathered and underwrite the guarantee for a fee (insurance premium). In most cases. The guarantor generally underwrites the loan without compensation
And in most cases, the guarantor’s own assets are appropriated to the debtor’s default.
Preparing funds for the future
In addition, life insurance can also be used as a means of preparing the money you will need in the future, such as your children’s education expenses and living expenses after retirement, according to the necessary timing and purpose.
Life insurance is a method for safeguarding yourself and your loved ones.
It is important to check the coverage you need for yourself and your family and choose the type of insurance that suits your purpose. Get the right knowledge and use life insurance wisely.