“How Insurance Works” So many people might be wondering what is insurance all about, the benefits you get from insurance, the kinds of insurance, the functions of insurance and a lot more. I advise you to sit back relax and read this article to provide you with the necessary answers you seek. Answers will also be delivered and to clear all doubts as well.
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What is Insurance?
Insurance means a contract, which is a called a policy, in which an individual or organization receives financial protection and reimbursement against losses from an insurance company. The company pools clients’ risk to make payments more affordable for the insured.
The basic principle of the insurance is that the entity will choose to spend small periodic amounts of money against the possibility of a huge unexpected loss. Insurance is used to hedge against the risk of financial losses, both the small and that of the big that may or will result in any form of damage to the insured or her property or the from liability for the damage or that of injury caused to a third party.
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How Insurance Works?
There are different types or kinds of insurance policies available, and any individual or business can find an insurance company that is willing to insure them for a price. The well-known types of personal insurance policies are health, life, homeowners, and auto.
Special types of insurance policies required businesses that insure against types of specific risks faced by a particular business. For instance, a fast-food company needs a policy that is covers damage to the injuries that may occur as a result of the cooking with a gas cooker.
Insurance policy components
When you are choosing an insurance policy, it is important to understand how insurance works. The following are three crucial component insurance policies:
- The policy limit
- The Premium
- The Deductible
These are the important three crucial insurance policies you consider when making your choice.
Types of insurance
Insurance policies are designed on the principle that although we cannot stop unfortunate events occurring and so we can protect ourselves financially against them. Purchasing the right insurance depends primarily on your current situation. E.g. age, you have dependents, and the benefits you receive from your employer. Below are the four main types of insurance:
- Health Insurance
- Disability Insurance
- Life Insurance
- Auto Insurance
Aims of Insurance
The policyholder takes up an insurance policy because of the following aims:
- The economic help in old age.
- Relief in income tax
- For property tax
- It is for education or marriage of children.
- For family protection
Benefits of Insurance
Insurance can be of great benefit to individuals, organizations, and society in more ways than the average person realizes. Here are some of the benefits bellows:
- Insurance helps to reduce the social burden.
- It helps in promoting risk control activity.
- Complying with the legal requirements
- Efficient use of an insured’s resources.
- Helps in managing cash flow uncertainty.
- Payment of losses
- Support for the insured’s credit.
- It provides a source of investment funds.
This helps you to insured justify the purchase of insurance.
Purpose of Insurance
The purpose of insurance is to reduce your business exposure to the effects or the particular risks. These could include the following:
- Volatility and cash flow pressures following an incident.
- Illness or death of the key members of staff.
- The business interruption caused by external events such as terrorism.
- Compensation claims against the business or its directors by employees or customers.
- Damage to, or the loss of, physical assets such as your premises or equipment.
These are some of the purposes of insurance.