Insurance is a medium of financial protection in which the insured and the insurer agrees on a contract or policy against unforeseen circumstances, such as illness, accident, injury, disease, mental issues, and others. Definition of insurance can be also termed risk management because it secures uncertain loss. The company that provides the insurance policy is called ‘insurer’, while the individual who purchases insurance is called ‘insured’.
The Insurance Transaction Process
This process involves the insured and the insurer, the former makes a financial payment to the insurer. The insurer agrees to reimburse the insured in the occurrence of any unwanted loss. The insured may encounter losses that may or may not be financially possibly, but can be evaluated to monetary terms.
Generally, this involves something that the insured person has an insurable significance that has been established based on possession or ownership. The insured individual gets an insurance contract (insurance policy), which shows all the basic terms, conditions, and circumstances. It is through this, the insurer will use to recompense the insured.
Premium is the money the insurer charges the insured on his or her insurance policy. If the insured encounters a financial loss that is automatically covered by the insurance plan issued to him or her, the insurer tenders a claim to take care of the loss.
How Does Insurance Work?
There are several kinds of insurance policies, and each has their method of operation. The truth is any person or business can get an insurance company that is ready to offer them insurance policy for a price. In the U.S., most individuals have more than one type of insurance policies such as auto, health, and travel insurance, etc.
On the other hand, businesses demand unique types of insurance policies that cover definite types of risks that are being encountered by a particular kind of business. For instance, a construction company needs an insurance policy that can cover injury or damage that occurs as a result of carrying heavy metals with pieces of machinery. A chef is not subjected to this kind of accident but requires insurance coverage that could cover an accident that might take place during frying or cooking.
Basic Components of Insurance Policy
Three vital components must be considered when buying an insurance policy from an insurer. When the insured person knows this, he or she will be able to make the right choice when buying an insurance policy, and here they are; premium, policy limit, and deductible.
This is the actual price, which is typically expressed as a monthly cost. This is evaluated by the insurer depending on the level of risk. For example, if your occupation has a high amount of risk, you will be charged a high premium than someone whose occupation has a low-risk level.
2. Policy Limit
This is the highest amount an insurer will be asked to pay under an insurance policy should there be any financial loss, and this could be within a year. Generally, a high limit carries higher premiums. It can also be referred to as a lifetime maximum.
This is a fixed amount the insurance policyholder must pay from his pocket to the insurer before making payment for a claim. It acts as restrictions to huge volumes of small and inconsequential claims.
Types of Insurance policies
There are numerous types of insurance depending on what the insured wants to protect against financial loss.
- Life insurance
- Auto insurance
- Burial insurance
- Disability insurance
- Health insurance
- Travel insurance
- Property insurance
- Liability insurance
- Marine insurance
- Fire insurance
- Guarantee insurance
- Social insurance
- Mortgage insurance etc.
Insurance is a sure and safer way of protecting your income against eventualities because it manages the entire risk you have to go through when something bad occurs. For this reason, you don’t have to hesitate to choose an insurance policy that will suit your needs.