Insurance is for the uncertainties of life. Accidents and castastrophes happen. What cannot be predicted is when they will occur and whom they will affect. Most people understand they will get sick at some point in their lives, but they cannot predict the severity and extent of the illness nor the cost of the treatment.
Catastrophes strike: In 2005, there were 24 weather-related or other disasters causing a total of $61 billion in insured losses. Hurricane Katrina alone caused $41 billion in damage from 1.75 million insurance claims.
Even the safest drivers face the risk of an accident, and even the safest homes can catch fire. In 2006, about 5 percent of insured homes had a claim, according to the Insurance Services Office. About 94 percent of these homeowners insurance claims were for property damage, including theft.
Lawsuits are another uncertainty that businesses and homeowners face. They are costly: In the 56-year period from 1950-2006, the costs of the tort lawsuit system in the U.S. increased an average of 9.2% each year, reported Tillinghast-Towers Perrin. While most lawsuits are settled before they reach the courtroom, Jury Verdict Research data show that the median plaintiff award in personal injury cases was $45,000 in 2005, compared with $32,000 in 2002. Insurance provides two benefits to those who are sued: It pays for the cost of defending the lawsuit and pays for any liability payments for which the insured is found responsible.