Quora Answer: Are People on the Verge of a Financial Catastrophe with No Insurance?

The following is my answer to a Quora question: “Are people on a verge from a major financial catastrophe having no insurance?”

Insurance is simply a contract to mitigate risk by transferring some of that risk to an external party to bear, for a payment called a premium.  In the event of a loss, there is a payout.  The lack of insurance means that there is nothing to mitigate that loss.  It may, or may not, be a financial disaster, depending on the extent and nature of the loss.  If that loss is debilitating, then we are looking at financial ruin, in the more extreme cases. At the very least, it is a loss of income, or wealth.

As such, to claim that people are on the verge of a financial catastrophe may be hyperbole, since we do not really know their true financial health.  However, it is statistically true that the vast majority of people are underinsured, and in the event of a loss of breadwinner, whether through death, disability or critical illness, they will suffer a deterioration of their standard of living.  Likewise, most businesses are grossly underinsured, and exposed to risk, whether force majeure, or legal action, or employee misbehaviour.