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 an insured a guaranteed sum assured or insurance benefits to compensate the loss. The insurance covers properties mentioned in the insurance policy only. Also, the one who is liable to receive insurance benefits is the one who is mentioned in policy too.
Claiming of benefits
After experiencing loss, a policyholder have to file a claim to an insurer. An insurer will send an insurance adjuster to investigate the event that caused the loss and calculate the total loss. After a claim to be approved, a policyholder can receive the benefits from insurer to compensate the loss.
Expiration of the insurance policy (contract)
The coverage ends when a term expires. The end date or expiration date of a term is mentioned within a contract. An insured has a room to renew a contract if he or she would like.
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 direct from the cash value in case a policyholder fail to pay them.
Keywords meanings:
- A company or entity 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 coverage.
- 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 an insurance policy. A policy is registered by his or her own name. He or she is considered the owner of an insurance policy. Policyholder is also known as a named insured. While;
an insured is any person who is covered by the insurance policy. He or she can be a policyholder or just 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 an insurance that covers life. Where by an insurer guarantees payment to the designated beneficiaries when an insured dies. In life insurance, beneficiaries who receives insurance benefits are selected by the policyholder and they must be mentioned in the insurance contract.
Life insurance is categorized into two main types which are Term life insurance and Permanent life insurance. A term life insurance covers a certain period of time while permanent life insurance covers almost whole life of an insured.
General Insurance
It involves all types of an insurance that do not cover life. They are sometimes called Non life insurance.
Examples of general insurance are health insurance, auto insurance, home insurance, travel insurance, etc.
Advantages of insurance
Provide Protection
Insurance gives protection against losses by guaranteeing compensation of your losses or damages of your properties.
Source of employment
Insurance sector creates job opportunities to people of various 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 played in a contract. 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 most of people especially who live in developing countries.
It can enhance crimes
Insurance beneficiaries may commit crimes so as to get 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 can lead 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.
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