The tradeoff between returns and risks is the fundamental basis of investments. All investments carry some degree of risk. That you could lose some or all of your money is the main basis of all investment undergoing. The common belief is that, the greater the risk the greater the potential rates of return.
Risks are weighed against returns by the measure of volatility of the investment. Stocks tend to be the most volatile while bonds are stable. The more volatile an investment is, the higher the risk and the returns. The amount of risk one is willing to take depends on the amount of money in their possession (Werthamer, 2009).
Invalidation of risks
There should be no point where the potential returns of an investment render the risk factor invalid. This is attributed to the fact that the amount of risk you take with emphasis on investment should be dependent on the amount of money you have under your disposal.
Money is the main factor in any investment undertaking and if one fails to take this into consideration the results could be bankruptcy or even prison confinement (Biafore et.al, 2010).
Benefits of insurance
Insurance is mainly beneficial when partial or total loss of acquired assets or particular condition e.g. health is apparent. It provides a chance for the total restoration of damaged assets to their former status allowing the owners to be returned to their previous financial position after the loss.
The main pro being that the insurance premium holder will be fully compensated whether or not they have finished paying their premiums (Insurance & benefits, 1996).
Insurance not beneficial
As with every fundamental element everything that has a pro has a con and insurance is not immune to this law of nature. The main way through which insurance is not beneficial is due to the fact that the payments by the clients who purchase it are made whether or not a loss is incurred and no payments are made to clients unless the loss occurs under the set conditions in the contract.
The major beneficiary at the end of the day is seen as the insurance company which keeps all the money.
The Insurance industry is very dynamic. What can or cannot be insured against changes within and among different countries and the policies of the individual insurance companies.
The rules changes from third world countries where insurance is not offered against natural disasters to more developed countries where insurance can be purchased for celebrities legs if they wish to do so.
Biafore, B., & Buttell, A. E. (2010).Personal investing. Sebastopol, CA: O'Reilly.
Insurance & benefits. (1996). Washington, D.C.: President's Committee on Employment of People
Werthamer, N. R. (2009). Risk and reward. New York: Springer.