Accidents can happen anytime and anywhere. From minor fender benders to the loss of a home, personal injury, or even death, nearly everyone has experienced some sort of accident in their lifetime. They come unplanned and often when you're unprepared, but that's what insurance is for.

Insurance, which comes in many forms, helps minimize the cost of accidents that might otherwise drain your personal finances.

Having insurance doesn't reduce the possibility of accidents happening, but it does transfer much of the financial responsibility in case they ever do. Insurance exists to protect us from the risks of everyday life.

Though it's possible that you may never have to take advantage of your insurance policy, you'll have the peace of mind knowing that financial assistance is available if it's needed. Some people may hesitate to buy insurance because they feel they'll never actually use it and don't want to pay a premium each month, but having a policy in place could one day prevent you from losing a lot of money.

How Does Insurance Work?

Essentially, insurance customers are agreeing to share the risk of financial burden together.

Insurance companies take the overall money contributed from its policyholders and pool it to help pay off the claims made by other customers. By paying your premium each month and later receiving help when you need it, it's a very give-and-take process.

The method that insurance companies use isn't difficult to understand. In order to cover customers' financial losses, insurance companies need a wide base of members. They compile data during the course of several years to figure out their expected annual losses, and more customers means more money coming in to offset their losses.

Not all costs are guaranteed to be covered, either. Individuals should check each of their insurance policies to see specific details. If the damage caused is more than what the policy covers, the difference must be paid out of pocket.

How Was Insurance Created?

The idea of insurance use can be traced back to the 2nd and 3rd centuries BC, when Babylonian and Chinese traders began making their way around the world. Merchants would split their goods up among several shipping vessels to prevent losing everything if a ship was damaged or lost at sea.

The earliest form of monetary property insurance came about shortly after the Great Fire of London in 1666. Following the loss of more than 13,000 houses, protecting one's property became a necessity. Fire insurance became popular very quickly, and shortly thereafter 5,000 homes were insured against future fire damage.

As time went on, the uses for insurance became much more varied to cover all different aspects of life. Now, individuals can insure just about anything that they consider valuable.

What Kind Of Insurance Is There?

Since there are some aspects of life that could have devastating financial consequences, experts suggest getting insurance even though you may never need it. These often relate to the more expensive parts of your life, such as automobile, home or medical coverage.

One thing potential insurance customers need to consider before agreeing to a policy is whether or not the items they want to insure are worth the price of the premiums they'll pay. Smaller, less expensive items like televisions or video game systems may not be worth the trouble. Damages and losses of automobiles or homes are much more difficult to recover from without assistance, though.

Auto Insurance

Automobile insurance covers costs in the event that there's a collision resulting in physical or property damage.

Car insurance covers everything from scrapes and scratches to the total loss of a vehicle, but coverage comes in different tiers. Automobile owners can choose between several options on how much they'd like to receive if something were to happen to their car. They then typically pay a monthly premium, which is determined by the owner's insurance preferences, value of the vehicle, the driver's age, driving history, and several other factors.

Most states in the U.S. require that all drivers have some form of automobile insurance. Some even specify a minimum amount for which they need to be covered.

In addition to paying for the harm done to your car, automobile insurance can compensate for other damages. Most policies include options for medical insurance in case of injury while driving or riding as a passenger.

Other options include property damage coverage for any physical damage you may cause, uninsured motorist insurance in case you have a collision with an uninsured driver, or comprehensive coverage for damage your car may suffer while not in use. Most insurance companies even offer free roadside assistance with certain policies.

Home Insurance

No one wants to face the risk of losing their home, but it's good to be covered if anything were to happen.

Much like automobile insurance, home insurance is a way to maintain your private property and cover liability for any accidents that occur in your home. As its name implies, this type of insurance reduces the potential costs that can arise if your house is damaged or someone on your property is injured.

Without the proper amount of home insurance coverage, you could even become homeless if something happened and you couldn't repair or replace your home with your own money.

In the U.S., many homeowners take out mortgage loans to pay for their homes, and the lender will often require home insurance before they finalize the deal. That way, the bank's interest is protected if anything happens to the home.

Policy options include coverage against damage from fire or weather elements, but flood protection typically must be bought in addition to home insurance. The cost of home insurance depends on the value of the home and how much money it would take to replace.

Premium rates will fluctuate depending on the home's neighborhood and surrounding area. Owners can receive discounts if their home is in an area where it is less likely to be damaged or if the home is equipped with an insurer-approved security system and locks. Premium costs could be lowered for something as simple as the house being near a fire station, as well.

Home insurance in the U.S. was first introduced in the 1940s, but homeowners had to buy multiple forms of coverage and pay premiums on each one. Law reform in the 1950s simplified the process by condensing most risks into blanket coverage for the home, which we still see today.

Life Insurance

Life insurance isn't used to benefit the individual policyholder, but instead its purpose is to help alleviate financial pressure on the dependents of the deceased.

If you have a spouse, child, or other family member that depends on your income to live their everyday life, then life insurance is certainly necessary. If you suddenly pass away, your dependents will lose all sources of income that you bring into the home. Without that money, they could struggle to cover the household finances after you're gone.

Experts recommend that individuals purchase the amount of life insurance required for their dependents to keep the same standard of living as before the policyholder's death.

The life insurance policy will also allow your family to pay for funeral costs, which typically average between $7,000 and $10,000 in North America. Without any assistance, coping with a death in the family can suddenly become a big dent in someone's finances at the same time.

Other popular purposes for life insurance include:

  • Paying off bills or debts left behind
  • Paying estate taxes
  • Setting up inheritances
  • Putting your children through school

Only 57 percent of Americans were covered by some form of life insurance in 2014. Sixty-five percent said they haven't purchased additional life insurance because they think it's too expensive, but 8 out of 10 people overestimate the price of life insurance.

There are two main types of life insurance policies: Term and whole life. Term life insurance pays only if the policyholder passes away during the agreed term, which is usually about 30 years. Whole life insurance, as it implies, lasts until death, no matter when it occurs.

The idea for life insurance is traced back to ancient Rome, when citizen donations would help cover burial costs and provide an endowment for the deceased's family. That same notion was put into place in Great Britain in the early 18th century when Londoners began purchasing contracts and making contributions to help the family of any members who died. Though it's much different in execution, the idea remains the same today.

Health Insurance

Everyone gets sick or needs medical assistance at some point. If you need to visit an Emergency Room, get an operation done or even just go in for an annual check-up, health insurance helps keep medical costs down.

Depending on the details of each individual policy, health insurance also typically covers financial losses from accidents, disability, and accidental death or dismemberment.

Some additional benefits of health insurance include:

  • Hospitalization
  • Emergency services
  • Pregnancy and maternity care
  • Prescription drugs
  • Laboratory services
  • Mental health and substance abuse services

No matter your reason for using it, health insurance can save a ton of money in medical expenses. Some workplaces offer health insurance as part of their benefits package, but you may need to seek alternative sources for coverage if not.

The U.S. healthcare system mostly relies on private health insurance, which is the primary coverage source for Americans. In 2012, 61 percent of Americans had private health insurance. Public programs often were the most-used coverage for senior citizens and low-income families.

The basis for health coverage formed in the late 19th century when a firm in Massachusetts offered insurance for injuries sustained in railroad and steamboat accidents. Not long after, sickness coverage came into effect in 1890, followed by the first employer-sponsored group policy in 1911.

Pet Insurance

As veterinarian services become more expensive, some animal owners choose to take out insurance on their pets. Pet insurance pays for the treatment of an ill or injured pet, and some policies even pay out if the animal gets lost, stolen or passes away.

Two types of pet insurance exist: Non-lifetime and lifetime. The first covers situations that may arise during the first year of the policy, but any conditions that persist into the following period have to be paid for by the pet owner. Lifetime policies will include previous conditions, but they also have limitations. If you choose to purchase pet insurance, make sure it includes the terms that would help keep your pet alive and well as long as possible.

The first pet insurance policy was sold in Britain in 1947, and today about 25 percent of pets in the United Kingdom are covered. Thirty-five years later, the first pet insurance policy in the U.S. was taken out on TV's Lassie. Currently, there are more than 1 million pets insured in North America.

In 2010, pet owners spent about $13 billion on veterinary expenses, which was a 40 percent raise from the rates in 2006. Even situations that may require just a couple days of supervision and prescription medicine for your pet could cost upwards of hundreds or even thousands of dollars. Instead, pet insurance eliminates the financial difficulty of paying those expenses out of your own pocket.

The Importance Of Insurance

No one can predict the future, but insurance provides a financial safeguard to protect you and your dependents against everyday risk. Now that you have a better sense of what types of insurance are out there, it's up to you to decide which policies work best for your situation.

There are a wide variety of plans, policies and companies to choose from, so pay attention to the details and make sure you get the coverage that you need. Just because there's a commercial on television advertising great rates, you don't know for sure until you do your homework.

By protecting the health, personal property, and monetary interests of you and your family, you'll be covered in the chance that you ever need it.