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Why Buy Insurance?

What is insurance: very simply insurance is the sharing of ‘risks’ by companies or individuals who face a common type of loss, such as fire on a property. The companies or individuals, called ‘insureds’, put their money called ‘premium’, in a common 'pot', or fund, held by the insurance company, called ‘insurer’. On payment of the premium the insured receives a contract called a ‘policy’ – which spells out the risks insured and states that the insurer will indemnify the insured, or pay a third pay on behalf of the insured in case of a third party policy, if they suffer a loss from the risks insured - subject always to the terms and conditions. Insurance companies today take the place of the old mutual, they do it on a commercial basis.


Present day insurance started with ship and cargo owners who met at Lloyd’s coffee shop in London and arranged to share their risk. We have come a long way since then, we now have companies that are regulated and need capital to do their business. However the principle is the same.


Commercial Insurance is sold practically in its entirety through Insurance Brokers – which means that the insured (company or individual) cannot approach the insurer directly.


So why buy insurance? Different people look at insurance differently, some people think of insurance only as a way to satisfy the lenders, others as a requirement by the government in the case of car insurance or still for other reasons such as their own protection. However, one way of looking at insurance is to make an analogy to a life boat on board a ship – you, the passenger or crew, want the life boat there when you need it, you want a good one that will float and save you from harm. A good and well managed ship may never use the life boat but everyone knows it's  there. The captain makes sure that it is a good life boat which will do the job if needed, and it’s checked on a regular basis. A good captain will not take the cheapest life boat but will choose a good one at a good price.

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