The basic idea behind the concept of insurance is also the reason why most people prefer to ignore insurances until it is too late. The idea behind the insurance product is very simple. There are events in life that happen only to a few people or in other words there are events in life that the probability of them occurring to each one of us is less than one. Insurance is basically having everybody who participates in the program contribute a sum of money to a central account. If the insured event occurs to one of the insured members they will get money from the central account to cover the event cost. For most members the event will never happen and they will end up contributing to the central account without ever getting paid.

Not getting paid or not having to file a claim to the insurance in order to get compensated from the central account is actually a good thing. Events are occurrences that are bad health insurance covers illnesses and car insurance covers accidents. So not having to use the insurance or to get money from the central account is a good thing as it means that you were lucky not to suffer a bad event. But many people see that luck the wrong way being upset that they have been paying sometimes all their life without getting paid back.

Insurance however is absolutely needed and ignoring it is a big mistake that some people do. There are some insurances that people tend to ignore more than others. For example many young people ignore health insurance thinking that they are young and healthy and would not get sick. While for most of them this is true for a small number having or not having insurance is the difference between life and death. Not having insurance is an extreme case. Sometimes people do have insurance but they buy the wrong insurance and thus effectively they are in the same or almost the same situation as people without insurance at all. This phenomenon is also known as underinsurance.

Underinsurance is having insurance that is too low to cover the real cost of the rare event that the insurance is supposed to cover. Car insurance is a good example of where many people are underinsured. Car insurance is mandatory by law but the law sets the insurance policy payouts at very low numbers. Many people buy the minimum car insurance required by law since it is the cheapest insurance available. They also assume that since this is what the law dictates then this is what they really need and any more insurance is just a way for the insurance companies to get more money. But having insurance thresholds that are very low mean that if a bad car accident happens god forbid the insurance payouts would not cover the costs for the cars involved and for physical damages if there are any god forbid. It is important to be insured to cover the worst case life events that might happen. Health insurance and good car insurance are a must. Life insurance is also a must if you have dependents.