Wouldn't it be great to live in a risk-free world. Where unforeseen events had no adverse effect. Where actions had no dire consequences. Yes, a life of reckless abandon… But, where's the fun in that.
Life is full of things we don't necessary like and which we can't overly control - accidents, misadventure, calamities and misfortune. And yes, the result of such disasters can be devastating to individuals and families. Furthermore, financial ruin can often be the final outcome.
Almost 4,000 years ago, during the first Babylonian period, the first known insurance policy was put in place. In this instance the state ran a cargo insurance scheme, whereby if you were robbed or lost your shipment while on route to your destination, you could be reimbursed for your losses. Though there was no direct premiums to pay for this cover, as the Government was paying, the people thus paid indirectly through taxes (just like Medicare). Though religious and political powers since then have at times hampered the development of the insurance industry it has grown to be one of the most important elements of our financial and economic systems.
Insurances, whether state-run (Medicare, social security), state-enforced (CTP, workers comp) or privately-run (life and general insurances), as in times of old, are there to help in times of unforseen misfortune. It is essentially the pooling of community funds (through premiums/taxes) to be distributed in times of loss and/or need to members of that community.
Q & A…
Is it worth it? Ask anyone who's family life has been saved by an insurance payout and they would give a resounding "yes". Conversely, ask those who have been struck with catastrophe without a firm safety net and they too will offer the same, yet more sombre, answer.
Do insurers really pay? General insurers do get much stick for "fine print" claim rejections (Brisbane floods), but a lot of them still do pay when legally they don't have to ('98 Wollongong floods). Due to the relatively small amount of variables involved, life insurers (death, disability and trauma coverage) do have a much better rate of claim payouts (over 99% for most) and really only reject claims based on non-disclosure(i.e. you failed to tell them you had a heart attack a year before you took out the policy).
What do I cover? If you were to prioritise, look at what events would cause you the greatest loss and insure against those first - home insurance, income protection, death cover, etc. If I had to choose between insuring my car for $30,000 or insuring my income potential (average salary of $50,000 for the next 20 years) through life insurances, the latter would easily seem to be the best decision. Mitigating as much risk as efficiently as you can is the key. Also, taking out life and disability covers paid from you super can help.
Hopefully none of us will need to face calamity. Realistically though, the chances are we will. Though life is not risk-free, knowing that there is a sound and secure pool of community funds there for you to draw on in times of need, helps to make the journey of life that much more stress-free.