Question

It is understandable why we have insurance to cover catastrophic losses. Not many of us have hundreds of thousands of dollars laying around. Interestingly, there are many individuals who have insurance to cover small expenses (i.e. dental. Vision). This will be the topic of this week’s discussion. First, discuss the reasons why a person would purchase insurance vs being self-insured. Next discuss why someone would choose to have coverage for a small claim. Be sure to briefly mention the three reasons listed in your textbook. Do you think the cost of the premium is worth it based upon how much it would cost out of pocket to get dental, vision, etc.?

Answer 1

Solution:

Reasons why a person would purchase Insurance,

• The price of the premium is not much compared to the losses he would incur if he was not insured.
• Having insurance is a way to keep oneself at peace of mind and without worries.
• Insurance covers a variety of claims which can be beneficial to the person in the scenarios of uncertain issues that may arise.
• Insurance is a way to protect oneself and save on the costs of issues that may arise.

The reasons why a person would go for coverage for a small claim,

• The tests which we conduct for dental and vision will cost us a significant amount which otherwise would be covered by the insurance provided under the preventive care policy
• The cost of the premium is less than the cost of actually operating from our pockets.
• It helps the insurer in case of avoiding sudden costs which can destabilize his financial condition.

I believe that the cost of the premium is lesser than paying out of one's pocket for the expenses of the issue. Paying from the pocket will be a sudden expense which can result in financial instability for an individual while premium planned activity and a person can be prepared for paying the premium and hence can manage his finances accordingly.