What is an insurance? Types, Advantages And Disadvantages

Insurance is an agreement between an insurer and an insured, whereby an insurer promises to compensate insured's losses in return of paid premiums. In other words, an insurer provides protection while an insured is protected.

Different meanings of an insurance

• It is an agreement by which a company or state guarantees compensation for specified loss, damage, or death in return of payment of a specified premium. 
• It is a thing that provide protection or secure to persons properties against risks.
• It is an agreement between insurer and policyholder where an insurer is eligible to pay a policyholder when incurs loss.
• It is a way of protecting your self or your family from financial losses.

How does Insurance work?

A policyholder or an insured pays premiums (also known as insurance fees) to an insurer for the coverage. Once an insured get loss an insurer pays him or her the guaranteed sum assured (also known as insurance benefits) to compensate the loss. The insurance covers properties mentioned in the insurance policy only.

Claiming of benefits

After experiencing loss, a policyholder have to file the claim to an insurer. An insurer will send an insurance adjuster to investigate the event that caused the loss and the total loss. After the claim to be approved, a policyholder will receive the benefits. 

Expiration of the insurance contract

The coverage ends when a term expires. The end date or expiration date of the term is mentioned within the contract. An insured has a room to renew the contract if he need more coverage or let the contract expire.

Cancellation of the insurance contract

A policyholder have to pay premiums regularly in order to avoid cancellation of the policy, in case he/she fails to pay premiums the contract will be terminated. Though for some types of insurance that  build cash values like permanent life insurance, the premiums will be charged from cash value when a policyholder fail to pay them.

Keywords meanings:

• A company that gives a guarantee of compensation for losses of an insured is called an Insurer.
• A person who is entitled to receive insurance benefits is called an Insured. 
• A person whose policy is registered by his or her name is called a Policyholder or named insured.
• Insurance policy is a document that contains terms and conditions.
• Premium is a fee paid by a policyholder for the insurance cover.
• Any person other than a policyholder who enjoys benefits of the insurance policy is called an additional insured.

A policyholder vs. An insured

A policyholder is a person who buys the insurance policy. The policy is registered by his or her own name. Thus, he/she is the owner of the contract, sometimes known as a named insured. While an insured is any person who is covered by the insurance policy regardless is a policyholder or an additional insured.

Types of Insurance

Generally, there are two main types of Insurance which are life insurance and general insurance.

Life Insurance

This is the type of insurance which covers life. An insurer guarantees payment to the insured's designated beneficiaries when an insured dies. In life insurance, beneficiaries are selected by the policyholder and he or she must mention their names in the contract.

Life insurance is categorized into two main types which are Term life insurance and Permanent life insurance. The term life insurance covers a certain period of time while permanent life insurance covers whole life of an insured.

 

General Insurance

It involves any type of an insurance that do not cover life. It is sometimes called Non life insurance. 

General insurance includes, health insurance, auto insurance, home insurance, travel insurance, etc.

Advantages of insurance

Provide Protection

Insurance gives protection against losses by guaranteeing compensation for your losses or damages of your properties.

Source of employment

Insurance creates job opportunities to people of different professionals. Actuaries and insurance adjusters are example of professionals hired in insurance companies.

Financial recovery

It helps people and businesses to recover financially when they face accidental events like fire, floods, earthquake and hurricanes.

Gives peace of mind:

Insurance gives people a peace of mind since it assures them compensation for their losses.

Disadvantages of insurance

Does not cover every type of loss

Insurance compensates your losses according to the terms and conditions, therefore some types of losses might not be covered by the contact.

It is expensive

The cost for purchasing an insurance policy is high and might be unaffordable to some people.

It can enhance crimes

Insurance beneficiaries may commit crimes so as to be paid.

Long procedures to receive your benefits

It might take long time for an insurance company to issue the claims filed by the beneficiaries. This leads to the delaying of benefits to the beneficiaries.

Conclusion: Despite of disadvantages mentioned above, insurance is very important in today's world as it gives us assurance of financial security. So its better to purchase your own policy so as to be secured.