Insurance is a contract that is run by insurance companies that covers some policies made by a policy holder known as an entity and it is done between an individual and an entity in the form of a contract. In other words, it’s a financial agreement that is done between an organization, entities, and insurance companies, the purpose of insurance is to provide financial protection and coverage against adverse event that could happen in life in return for regular payments that is known as premium. When a policy holder pays a premium, all the financial burden of future loss is transferred to an insurance company. Insurance companies in return agree to provide compensation or coverage if certain events like covered risk or covered perils happen.
Types of Insurance:
Here are some basic insurance Health Insurance, Car Insurance, Life event insurance and business insurance
The events include accidents such as injuries to individuals, workplace injuries or car accidents. Illness or health-related insurance in which all the medical expenses like medication, hospitalization, and doctor visits are included. Other events are property damage or loss in which if property damage occurs in any way like fires, storms, and theft then the insurance company will pay the financial assistance due to damage.
Life event insurance includes paying benefits to loved ones after the death of a policyholder individual. Moreover, there are liability claims that are associated with settlements related to legal claims when a person is a policyholder and is involved in any sort of injury or damage to other people or property.
The other type of insurance includes business insurance in which if a business has gone through a loss due to a natural disaster then the insurance company will pay the loss. There is also insurance of disability that says if the policyholder will become disabled then this insurance of disability provides them income replacement as they cannot work due to their disability.
Few concepts used in Insurance:
A few concepts used in insurance are premium, policy, coverage, deductible, claim, actuary, underwritten, and reinsurance.
- Policy: it is the contract that is made legally that covers the terms and conditions upon which the insurance policies are based e.g. to what extent the risk could be covered, the amount of money a person has to pay, and on what basis, the duration of coverage.
- Premium: To maintain the coverage and cycle of insurance the amount of money that could be annually, quarterly, and monthly paid by the policyholder to run the cycle of insurance is known as premium.
- Deductible: it’s the amount that a person or policyholder must pay to be eligible for the insurance. In simple words if there is a 1000-dollar deductible on your health insurance and the loss has occurred where the cost is 2000 dollar so here the person has to pay the 1000-dollar deductible to be eligible for the health insurance and if the amount deductible has been paid out then all the expense whether it would be 3000 dollars will be paid out by the insurance company.
- Coverage: it includes a wide range of matters in terms of losses and risks few common types are mentioned above like health insurance, life insurance, business insurance, property and casualty insurance, liability insurance, etc.
- Actuary: These are the professionals who are hired by the insurance companies who are basic mathematics, financial theorists, and statistics and those who will evaluate the risk and manage it according to the company’s policies in which the company could help the individual side by side would get benefit also. They help the company in setting accurate premium rates according to the risk coverage.
- Claim: It’s a procedure in which a claim is filed for the insurance if an individual went through a loss that is mentioned in a policy of insurance then after the loss the individual can file a claim so that all the loss could be covered by the company. The insurance company will assess the loss first and if the claim is approved all the financial stability will be given to cover the loss.
- Underwritten: these are elevation of the risk that a company could be covered based on factors of policyholder such as age, health, etc the rate of premium is also decided based on that. The basic purpose of the insurer is to estimate the level of risk that a company could accommodate and the amount of premium. Underwriting is a critical function in this domain because it allows the companies to assist the risk productively and ensure that the assumed risk and the level of premium are aligned. The other important factor of this domain is to allow insurers to persist financially stable and help in providing coverage to policyholders.
- Reinsurance: Reinsurance is the insurance of an insurance company; it happens between the insurance industry where the insurance company files insurance into another company so that in case the company has gone through a big loss the reinsurance could help the company in maintaining the loss.
Insurance plays a most crucial but at the same time important role in modern society through financial protection and also by increasing economic stability. Its basic purpose is to manage risks that are associated with health, property, business, liability, and more. The person, organizations or we can say policyholders pay the amount of money known as premiums to transfer the financial burden of potential losses to insurance companies, which, gives them benefit by using their collective resources to support individuals and businesses to recover from adverse events.