Insurance is a means of protection from financial loss. It
is a form of risk management, primarily used to hedge
against the risk of a contingent or uncertain loss. The
amount of money paid by an individual or organization for
insurance (cover/protection) to an insurance company is
called the premium.
If you have no insurance and an accident
happens, you may be responsible for all
related costs. Having the right insurance
for the risks you may face can make a big
difference in your life.
People get insurance not only to help with
risks from unexpected events but also to
help pay for routine things, such as annual
medical checkups and dental visits. In addition, insurance companies negotiate
discounts with health care providers, so their customers pay those discounted rates.
An insurance policy is a written contract between the policyholder (the person or
company that gets the policy) and the insurer (the insurance company).
The policyholder is not necessarily the insured. An individual or company may get
an insurance policy (making them the policyholder) that protects another person or
entity (who is the insured). For example, when a company buys life insurance for an
employee, the employee is the insured, and the company is the policyholder.
Benefits of insurance
Insurance enables individuals and organizations not
to suffer the financial loss that would result from the
occurrence of an insured risk. Insurance therefore;
Provides payment for covered losses when they
occur. The uncertainty of paying for losses out of-pocket reduces significantly thus managing cash flow.
Gives a peace of mind thereby enabling
investments of larger amounts of money
Provides financial protection to dependents in
case of death of the breadwinner (Life insurance)
Provides savings for future prosperity in case of
life insurance
It’s a means of mobilizing investment funds. When
insurance companies collect premiums, they
invest those premiums in a variety of investment
vehicles, and pay claims when they occur.
Controls and reduces losses through surveys and
provides risk improvement advice to the public
and those insured
Enables continuity of micro businesses that
depend on the insured business
Reduces individual burden on society such as
education of the children after the death of the
breadwinner.
Reduces the burden of loss since many people
shoulder the loss thus providing a form of social
cooperation
How does an insurance policy work?
Insurance policies are often in place for a specific period of time. This can be
referred to as the policy term. At the end of that term, you need to renew the policy
or buy a new one. With some types of insurance, you choose a beneficiary, the
person you want to receive the policy’s benefits or payments.
When you buy an insurance policy, part of your responsibility includes paying
a fee called a premium. Some premiums are paid monthly, like health insurance.
Others may be paid once or twice a year, like auto or homeowner’s insurance.
The cost of your premium generally depends on how much of a risk you are to the
insurance company.
In addition to the premiums, most insurance policies include a
deductible. That’s the amount you have to pay first, before the
insurance company pays their share. For example, if you have
a $500 deductible on your homeowner’s policy and a storm
causes $3,000 in damage, you will pay $500 and your insurance
company will pay $2,500. With some policies, you can choose
your deductible. Usually, a higher deductible means a lower
insurance premium.