Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Written by Shuman Roy
Content Writer & Entrepreneur Shuman Roy

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jun 28, 2022

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Most of us think of insurance as a necessary evil at best. We rarely, if ever, see the benefits of purchasing insurance…other than making insurance companies and executives filthy rich.

For one reason or another, many people believe they shouldn’t have to buy it, or perhaps think it’s a waste of money, and probably wouldn’t buy it if it weren’t made mandatory by state law.

[Is car insurance required in every state?]

But the reality is, without insurance, much of the financial world as we know it would grind to a screeching halt, and we would only own the things we could afford to buy in cash…if there were even companies around to pay us a salary or sell us anything.

We need only to look at some of the basics of how insurance adds to our society to understand its value. While paying for insurance is nothing but a pain to most people, there are a few reasons insurance helps society as a whole.

Believe it or not, we’d all have less money in our pockets if it weren’t for insurance.

Taxes Would Be Much Higher

First, insurance reduces the money we all have to pay for uncompensated victims of accidents.

Without insurance, many who are injured in an accident would become a drain on state and federal government agencies as a result of not being able to pay their medical bills..

In short, your taxes would increase in order to pay for rehabilitation or care of the sick and injured.

The reality is, we all pitch in a few dollars, in the form of insurance premiums, and let the insurer pay out the huge bodily injury and property damage costs that result from car accidents and other various liability and property damage that occurs on a daily basis in the U.S.

[Can insurance prevent bankruptcy?]

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Insurance Helps the Economy

The second benefit has to do with capitalism, or business pursuits. There would be fewer businesses in America if there were no companies to insure them.

Ask yourself this; how would any business be able to survive if it suffered from a loss? If a tornado struck your town and destroyed much of the property, how would the affected companies reopen?

Unless they had enough cash in the bank to completely rebuild their premises and manufacturing equipment, they would be bankrupt immediately.

By the way, what if the bank was destroyed? Where would their cash be? Who would pay for the restoration of the credit system at the bank? This is all covered by insurance.

Also consider the fact that the typical “slip-and-fall” liability claim would bankrupt the average small business owner as well. Whether it’s a legitimate insurance claim or not, very few small businesses could afford to write a check to a person with a broken back who sued them for slipping in their store.

[What is commercial general liability coverage?]

Insurance Makes the American Dream Possible

Perhaps the most important value of insurance to the average American is the fact that insurance indirectly provides us with credit to purchase items we deem necessary for what we consider a normal life.

You need an insurance policy to purchase a new car or a home if you don’t intend to pay in cash. Without insurance to cover a bank’s financial interest as a lien holder on your loan, how would you convince the bank to lend you money in the first place?

Let’s face it; a bank would not lend you $200,000 to buy a home if they weren’t 100% certain the property would be rebuilt if it were destroyed. After all, would you continue to pay your mortgage if your home were destroyed by a tornado and not rebuilt using insurance money?

You don’t have to answer that…we already know millions of Americans don’t want to pay their mortgage if their home is worth less than they paid for it, let alone wiped off the face of the map!

[Is there tornado insurance?]

The World Economy Depends on Insurance

Finally, insurance plays a huge role in the world financial markets. Insurance companies invest our premium money in start-up companies as well as many forms of government bonds, which allow the upkeep and building of our country’s infrastructure.

Again, this saves us all from paying huge tax bills. If insurers didn’t buy these bonds, we would have to settle for poor roads and bridges, or foot the bill ourselves via higher taxes.

Not to mention when the Japanese earthquake/tsunami hit, insurance companies responded by paying out billions of dollars in order to rebuild much of the destroyed property. Without insurance, Japan would have had to come up with that money out of thin air…with no manufacturing capabilities to rebuild much of the affected area.

At the end of the day, insurance is one of the best social devices ever conceived of. Without it, we would not be able to enjoy the quality of life afforded to us in the United States.