What role does insurance play in personal finance?

Insurance plays a significant role in personal finance by providing a safety net that protects individuals and families from financial losses caused by unforeseen events. By transferring the risk of significant expenses—such as medical emergencies, accidents, or property damage—from the individual to the insurance company, a policyholder can safeguard their financial stability and well-being.

Having insurance enables people to deal with unexpected financial burdens without derailing their long-term financial goals. For example, without health insurance, a single medical emergency could lead to overwhelming medical debt. Similarly, having auto or home insurance means that costly repairs or replacement due to accidents or disasters can be managed without a substantial financial hit.

This protective role of insurance fosters financial health by allowing individuals to plan better for the future, knowing they have a buffer against certain risks. It enables them to focus on building wealth and reaching financial goals with greater peace of mind.