Why do you need insurance?

Insurance is often one of those things you dread having to deal with.

Let’s face it, talking to the insurance company and taking out a policy is often a major hassle; a headache that most of us could do without. But there are times when insurance is simply unavoidable – whether you’re being required to take out a policy by the government, the bank, or even your employer, you will most likely have to deal with insurance at some point.

But why is this? Why do we need insurance? What function or purpose does insurance fill?

To answer these questions, it may be helpful for us to examine the definition of insurance, which in Hong Kong is as follows:

An equitable exchange of risk, from one party to another, in return for an agreed fee.

This is a fairly broad definition, and obviously includes a wide range of scope when it comes to “risk.” It then follows that there are many different types of risks that can be exchanged under the mechanism of insurance, as long as the exchange is equitable to both parties, and a fee is paid.

To simplify this, insurance exists to protect you or your assets against the possibility of something bad happening.

Lots of Risk means Lots of Coverage Options

If it is a risk, there is a very strong chance that an insurance underwriter, somewhere in the world, will cover it. From celebrities who have insured their body parts, through to Kidnap and Ransom insurance and more routine things like Home Contents Coverage, there is literally an endless list of things that you can insure.

In all these cases, policyholders have taken out an insurance policy to protect against the possibility of something bad occurring. Should the bad thing occur, then the policyholder will be compensated (or otherwise taken care of) via their insurance policy. This is an oversimplification of insurance, but the idea still holds; insurance is a mechanism by which you are able to recover a loss, or avoid it completely.

In many cases, it is up to you as to whether you wish to purchase insurance and protect yourself against a risk and subsequent loss. In other cases, the insurance is required – both for you and the interests of society at large.

Required Insurance Products

Some insurance products you will be required to purchase. Undertaking certain activities will trigger a mandate for you to hold insurance coverage. This is unavoidable.

In Hong Kong there are two major types of mandated insurance coverage.

Hong Kong Car Insurance

Car insurance is probably the most obvious example for why you need insurance. Firstly, it is required by the Hong Kong government that anyone operating a vehicle on public roads hold (at least) a valid Third-Party Insurance certificate.

Secondly, there is always the risk of an accident when you drive a car. You could be the best driver in the world, but could find yourself involved in an accident caused by someone else. Car Insurance is a necessity; transport wouldn’t function without it and the legal system would be clogged with civil suits where individuals involved in car accidents attempt to recover losses from each other.

By mandating minimum insurance coverages that must be held by all motorists on the roads, there is the assurance that if you are the victim of an accident caused by someone else, that you will be compensated for any losses you experience. The flip side of this is that insurance will also protect you by compensating other parties for losses experienced via a motor vehicle accident which you caused; you won’t go bankrupt paying your expenses as the insurance will cover your liability.

So even though Car Insurance is required, the requirement to possess it is extremely sensible – it allows drivers to operate their vehicle on the roads without obsessing over the losses they may experience, or be liable to, in the event of an accident.

Employees Compensation Insurance

Worker’s Compensation Insurance, known in Hong Kong as Employee’s Compensation Insurance, covers employers for their liability towards employees suffering a workplace related accident, injury, or illness. All employers in Hong Kong must have employee’s compensation coverage – this includes individuals who employ domestic staff, like domestic helpers and chauffeurs.

The reason for this is fairly simple, while Hong Kong has labour laws in line with first world and developed nations, businesses would not be able to function if they had to focus on settling claims of employee injury. In order to assure employees that they will have vital support should they suffer a workplace accident, and to ensure that businesses are not bankrupted by liability claims towards workers who are injured on the job, the government has mandated that Employee’s Compensation Insurance must be taken out.

Again, this is a question of protection. While many businesses are unlikely to experience workplace related accidents, the fact that the insurance exists will stave off many future problems in the event of a loss. Employee’s Compensation Insurance is about forward thinking risk management, its about making sure that support is available in a worst case scenario.

Why you need insurance: Planning Your Life Against Risk

Insurance exists to protect you. A very simple answer to the question of “why do I need insurance?” may be, “because risk exists.” You don’t know what will happen in the future, and the two products mandated for purchase by the government in Hong Kong are great examples of why contingency planning is so important – a car accident without insurance could leave you exposed to hundreds of millions of dollars’ worth of damage, a business without Employee’s compensation cover would likely be forced to close in the wake of a workman’s compensation claim.

There is a wealth of insurance coverage that exists to ensure that you can live your best life.

Sometimes you’ll encounter a private business requiring you to purchase insurance; many mortgage companies require mortgage holders to take out life insurance, for example. But on the whole, you are free to choose as little, or as much coverage as you see fit. Many people choose to purchase insurance as their life changes, obtaining home contents insurance when they purchase an engagement ring is a great example of this – there was no need to hold that type of insurance previously.

However, waiting until the last minute to obtain the right form of coverage can also be risky. When it comes to a product like health insurance, the longer you wait the higher the chance you will have to deal with issues like pre-existing medical conditions and waiting periods; both of which could impact your ability to fully utilize your coverage.

There are many, many options for you to protect yourself with insurance. Not all of these options will be needed in your specific situation, but some of them may be vital.

The expert Hong Kong Insurance brokers at CCW Global are able to consult with you and determine what specific insurance protection you may require. All our consultations are offered on a no-fee, no-obligation basis, and our brokers have years of experience in assisting insurance buyers in Hong Kong. If you would like to learn more about what insurance can do for you, or if you would like to receive a free quote comparing a range of options for any product you are interested in, please Contact Us Today.