What Is Property and Casualty Insurance and Why Do I Need It?

Very simply put, property refers to your “stuff” and casualty refers to other people’s “stuff” that you are liable for.

Property insurance is somewhat simple to describe. It includes many types of insurance designed to handle risks that we will suffer financial loss because of something we own is damaged or destroyed. Generally, these types of risk include but are not limited to Dwelling (home), Automobile, Crime, Personal Property, etc.

Casualty insurance is a little more difficult to define because it includes a wide variety of potentially unrelated insurance products. The main thing to keep in mind when dealing with casualty insurance is the liability portion (who is at fault?). For instance, if you were cutting down a tree in your back yard and it fell over and crushed your neighbors shed, you would be responsible for the damages done to the property of your neighbor. Casualty insurance also extends to any damages to any personal property or physical injury caused. So if your neighbor had a very expensive collection of tools in the shed and he happened to be working in the shed when the tree fell, you could be held responsible for the damages done to the tools as well as any physical injury suffered on the neighbors person. We could go even deeper and talk about non-medical injury the neighbor could experience that you would be responsible for such as pain and suffering, loss of wages and legal fees but I’m trying to keep this on a very high-end, basic insurance level.

One of my favorite stories is one of how insurance was used in the 3rd millennium BC by Chinese merchants traveling treacherous river rapids to sell their wares. If their vessel were to capsize, they would lose all of their goods and would not be able to provide for their families for that season. In order to transfer the risk (the basic purpose of insurance), they redistributed their goods across many vessels to limit the loss of any one vessel capsizing. This is a very simple but all-encompassing story to show how insurance works – transferring the risk so in the case of a loss, no one individual is completely damaged. The risk is spread to the masses so the loss is not as detrimental.

It seems many people today despise or don’t understand why they must have insurance. TV actor Ed O’neill from the famous 90′s program Married with Children was quoted in an episode saying, “Insurance is like marriage. You pay, pay, pay and never get anything back.” I like to think of the story of the Chinese merchants and think of insurance as more of a civic or neighborly duty that I have to do my part to transfer the risk amongst my community. After all, aren’t we all in this together?

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