Is There a Relationship Between Finance and Insurance?

Finance and insurance are certainly two parts of the same world. Both deal with money. Both are based on the idea that value can be apportioned to specific activities or concepts, not all of which have the same hard physical traction as commodities.

 Is There a Relationship Between Finance and Insurance?

Finance itself is an overarching term, which relates essentially to all valued actions and commodities within the sphere of an individual or corporation. As such, insurance has a clear financial element where it forms part of the finance structure of an individual’s or a corporation’s, arrangements.

On a very basic level, the relationship between insurance and finance is defined within the budgeting that an individual or a corporation must do in order to ensure that he, she or it pays his her or its premiums on time and so remains insured. Where insurance is a legal requirement, for example vehicle insurance or home owner’s insurance, it is necessary for the insured to maintain payments in order to refrain from breaking the law: and so the arrangements made so to do, which come under the heading of either personal or corporate finance, have a direct bearing on the overall financial situation of that person or that corporate entity.

Non-mandatory insurance, for example diving insurance, has a similar effect on the financial arrangements of people and companies: though its effect is only felt where the insurance is taken up. It must also be stated that some entities or people may be mandated to take insurance that others are not. To continue with our current example, a diving school may have to have diving insurance – while a novice diver may not.

Interestingly enough, of course, even the insurance policies we think are mandatory across the board are not. Vehicle insurance is only mandatory where you won a vehicle, and house insurance is only mandatory where you own a house.

This leads to another interesting area of discussion – namely, the relationship between owning something and having it insured. It is clear that the imperative for insurance on vehicle owners and home owners has to do with minimising loss to other people or corporations, rather than with redressing loss to the vehicle or the home owner. A vehicle must be insured so that claims may be made against that policy by third parties if the vehicle causes damage to their person or their property. A home must be insured so the home owner doesn’t go bankrupt and stop paying his or her mortgage.

There is another relationship between insurance and finance that has yet to be fully unpacked here – but which we have started to look at in the preceding paragraph. This has to do with the speculative nature of insurance, and its ability to prevent a specific occurrence from financially destroying an individual or a company.

In the short term, insurance protects against financial loss by bearing the weight of a claim – for example by paying for work to be done on a house that has suffered flood damage. In the long term, however, the financial implications of making a claim can prove damaging as well. For instance, if a person makes an insurance claim for a vehicle, his or her premiums can go up quite steeply even in cases where he or she was not the party at fault, and therefore was not really the cause of the claim.

 

Nestor Hughes is an insurance adjuster. Click here http://www.divemasterinsurance.com for more information.

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