Economic Importance of Insurance

While most people know they need to carry certain types of insurance, many do not understand the economic importance of this financial tool. Insurance impacts several aspects of an economic system.

Individual Protection

By covering an individual’s valuables or earning potential, insurance protects people from personal financial disaster. They can weather losses without losing the means to purchase necessities.

Third Party Protection

Some types of insurance, such as liability coverage, protect innocent third parties from economic loss.

Reduction of Lawsuits

Because liability insurance steps in to pay for damages caused to a third party, those who suffer injuries or damage do not have to take legal action to seek damages. This reduces the amount that government entities have to pay to hear court cases.

Availability of Goods

Without insurance, lenders would be unwilling to finance homes, vehicles or other valuables because the risk of losing their investment would be much higher. Far fewer people would be able to afford these items without financing.


Insurance creates jobs in nearly every area of the country. It also allows companies to continue producing homes, cars, jewelry and other items that would represent substantial financial losses if they were damaged or stolen. This allows people who work for these companies to continue earning income.