Insurance is something extremely important that everybody must have. Unless you have been out of the country without access to the Internet over the past year or so, then you know that health insurance has been a hot topic in the United States. But health insurance isn’t the only kind of coverage you can get. There are plenty of kinds, and they serve many different purposes. In this article, you’ll learn the basics of insurance.

Insurance was created to help reduce the effects of bad things happening. In this article, we’ll be using car insurance as an example. Let’s say you’re out driving around, and you accidentally crash into a tree. Your car is damaged, the tree is damaged, and you don’t have any insurance. You’ll have to pay for your car, pay for the tree, and pay for anything else that was damaged. Unless you’ve got plenty of cash saved up in some secret tree crash fund, you are going to be in trouble.

Now take the case of thousands of drivers. Each driver pays a few dollars a month. This money is all put into some big fund, used only to pay for car crashed. Of course, with thousands of drivers in this plan, there will be a few accidents each month. But there will be plenty of money to pay for them, if each driver continues to put money into the fund. This is the basic idea of insurance.

Naturally, not all drivers are the same. Some drivers crash more than others. And luckily, there is a fairly accurate way to determining the amount of risk for each driver. Insurance companies use huge amounts of past statistics to do this. Generally speaking, younger drivers are a higher risk, and older drivers are a lower risk. Also, your driving record is taken into account. Those with a clean record, that is no moving violations, will pay less. Those that have a few tickets will have to pay more.

It doesn’t stop there. The more expensive your car would be to repair or replace, the more you’re going to have to pay for insurance. Getting insurance on a brand new BMW is going to cost significantly more than for a 1998 Toyota Tercel. The deductible is also a consideration. This is the amount of money you have to pay before the benefits kick in. A lower deductible will usually mean higher rates, while a higher deductible will usually mean higher rates.

Of course, insurance isn’t one of the most exciting things around, but it’s something that everybody should have. Without it, one simple accident, illness, or other unforeseen event can completely destroy your financial life. So be sure to get some insurance if you don’t have it.

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