Things You Want to Know about Insurance
Written by Gloria zhu   


Insurance is a type of risk management in which the insured pays the insurer a monetary compensation, called a premium, for coverage on potential losses. To be more specific, insurance protects individuals, businesses and other entities from significant potential losses and financial hardship at a rate.

The point of insurance for the insured is to protect against a significant monetary loss. Auto insurance for example, requires you to pay a monthly fee to have your car insured. If you were to get into a car accident, the insurer would pay for your towing fee and damages. This principle applies to many other forms of insurance. If a potential loss is detrimental to a person or entity, you would want to have insurance to help minimize the effects.

Those who want to protect themselves or someone else against financial hardship should consider insurance. These include and are not limited to:
Insurance involves creating a pool of funds from multiple insured entities called exposures, such as people or businesses, in order to pay for rather uncommon, but severely devastating losses which can occur to these entities.


Terms You Need To Know

Insurability: Your insurability is important when a life insurance company decides how insurable you or an entity is. Let’s take life insurance as an example; there are some factors that can make you less insurable. First of all, the look at the risk factor of insuring you. For life insurance, your body is a risk factor.  The life insurance company wants to offer you protection, but the more ailments you have, the more you will be charged. If you are seen as less of a risk, you will get better rates and possibly better coverage.

Indemnity: Indemnity is the concept of protection from loss and damage claims filed by another person. For example, if the entity being insured is a company, a business may have indemnity insurance. An owner of a tutoring center may have indemnity insurance to compensate visitors injured on his or her property. Here, the insurance company would eventually pay enough to restore the injured person back to the financial state he or she was in before the accident, but nothing more. Only a legal lawsuit brought against the park owner could result in additional punitive damages. Indemnity insurance protects the holder from suffering financial loss due to a lawsuit.

Insurance Contract: The insurance contract is the policy document your insurer hands you. In a valid insurance contract, there is an Offer and Acceptance. Your offer is the papers you need to fill out. After you send it in, your insurance company accepts your offer and agrees to insure you. This is called an acceptance. Sometimes, your insurer may agree to accept your offer after making some changes to your proposed terms. For example, if it is for life insurance, your premium may be doubled for your smoking. 

Underwriting: Because insurance is based on risk, your insurance company needs to know how much risk it is to insure you or your entity and determine how much to charge you in premiums. Underwriters themselves deal with statistics and are the people who determine this. If a company charges too little, it could go bankrupt when large claims are filed. But if a company charges too much, it will lose business to its competition.

Premium: An insurance premium is how much money insurance companies are going to charge for active coverage. Insurance agents or brokers will take your basic information and calculate an insurance premium estimate based on your answers and other factors. An insurance premium for the same service can differ among insurance providers, which is why experts strongly recommend getting several quotes before committing to an insurance policy. The lowest quoted price on an insurance premium may be the better bargain, but the level of coverage may also be lower.

Deductible: A deductible is the amount of money which the insured party must pay before the insurance company's own coverage plan begins. For example, a typical auto insurance policy may carry a $500 deductible. If the owner of that car accidentally hits another car while parking and both drivers agree the damage is minimal, he/she would pay the $500 repair bill out of his/her own pocket. Insurance companies would not encourage a claim for such minor damages. However, this payment of $500 means that the next accident claim would be covered by the insurance company.


Last Updated on Tuesday, 28 December 2010 00:10