The most common myths about insurance are that policies are too expensive to be worthwhile, that insurers avoid paying claims, that a standard policy covers any damage, and that young or healthy people do not need insurance.
These statements are partially or completely incorrect and stem from a misunderstanding of how insurance works.
What is insurance
Insurance is a contract through which a person or a company (the insured) pays a premium to an insurance company, and the insurer agrees to pay compensation if a specific risk covered in the policy occurs.
The purpose of insurance is to transfer financial risk from the individual to the insurer in exchange for a premium.
The insurance broker acts as an intermediary between the client and the insurance company, providing consultancy and helping select the most suitable policy based on the client’s needs.
How insurance works – essential steps
Risk assessment
The insurer analyzes the probability of an event occurring (accident, illness, fire) using statistical data and clear criteria.
Premium calculation
The premium is calculated based on the level of risk, the value of the insured asset or the insured sum, and the insured’s history.
Policy issuance
The contract specifies the covered risks, exclusions, insured amount, and claim conditions.
Occurrence of the insured event
If an event included in the policy occurs, the insured notifies the insurer.
Claim assessment and payment
The insurer verifies whether the contractual conditions are met and pays compensation according to agreed terms.
The most common myths and clarifications
“Insurance is too expensive and not worth it”
In reality, premiums are calculated based on statistical risk and the principle of mutuality. According to the Organisation for Economic Co-operation and Development (OECD), insurance systems operate by distributing risks among a large number of people, which reduces the individual cost compared to bearing the full impact of a major loss alone.
Example:
The annual cost of optional home insurance is generally much lower than the cost of rebuilding a home after a fire.
“Insurers don’t pay claims”
Claims are paid if the event is covered and the contractual conditions are respected. Financial supervisory authorities impose strict rules regarding solvency and claims management.
Under European Solvency II regulations, insurers must maintain adequate financial reserves to meet their obligations toward policyholders.
Example:
If a CASCO policy excludes damages occurring off public roads, an off-road claim may be denied not because the insurer “doesn’t pay,” but because that risk is not included in the contract.
“A standard policy covers any situation”
Every policy contains explicit exclusions. For example, many home insurance policies exclude damage caused by war, normal wear and tear, or gross negligence.
Insurance operates based on specifically listed risks, not on the principle of “total coverage.”
“Young or healthy people don’t need insurance”
A lower probability does not mean the absence of risk. Premiums are generally lower at younger ages or in the absence of medical issues precisely because the statistical risk is lower.
Delaying the purchase of insurance can lead to higher costs later or the exclusion of conditions that develop afterward.
Why it matters
A proper understanding of insurance helps with:
- Realistic assessment of financial risks.
- Choosing an appropriate policy.
- Avoiding claim denials caused by misunderstanding the contract.
- Protecting personal or family financial stability.
Decisions based on myths can lead to underinsurance or significant financial exposure.
The most common myths about insurance concern cost, claim payments, universal coverage, and the necessity of protection. Insurance is a mechanism based on a contractual transfer of risk, supported by statistical evaluation and clearly defined conditions.
Understanding the structure as well as the limitations of the policy is essential for effective protection and for financial education.