Understanding Insurance: The world is full of uncertainties. Unforeseen and regrettable events might happen without warning. Any incident or accident could affect you, your loved ones, or your possessions. While there may be limited measures you can take to avoid such incidents, you can protect yourself from its financial consequences. That’s where insurance comes in.
But, what is insurance?
Insurance is a contract between an insurance company and an individual or business. As per this contract, the insurance company agrees to pay a sum of money in case of damage or loss to the insured person or property. This amount is known as the sum insured or sum assured depending on the exact terms of coverage. In return, the insured person or business pays a premium to the insurance company.
Let’s learn in detail about insurance and its nuances.
What is Insurance?
Insurance is a financial product that protects you against financial loss. It works by assessing and mitigating the risk of certain incidents & scenarios. When you buy an insurance policy, you are essentially paying a small amount of money periodically to help cover the cost of a larger loss that may happen in the future.
For example, if you buy health insurance, you are essentially paying a predetermined amount of money each year to help cover the cost of medical care that you would require in case of an illness or injury. The insurance company assesses your medical history, age, gender, etc. to determine the coverage and its premium. This makes it possible for you to avoid financial losses, even if the treatment required is too expensive.
Claims are subject to terms and conditions set forth under general insurance policy.
Workings of Insurance
Understanding Insurance: When you buy an insurance policy, you agree to pay a premium to an insurance company. In return, the insurance company promises to pay for your losses, up to the limits specified in your policy, if the insured event occurs. Claims are subject to terms and conditions set forth under general insurance policy.
The cost of insurance varies depending on the type of insurance plan, its coverage amount, and your personal risk factors. For example, a person with a good driving record will typically pay less for motor insurance than a person with a history of accidents.
When you are shopping for insurance, it is important to compare rates from different companies. You should also read the policy carefully to make sure you understand what is covered and what is not.
Principles of Insurance
There are several principles that govern the insurance industry. These principles include:
– Principle of Indemnity
This principle states that the insurance company should only pay the insured person the amount of money they have lost. Insurance is established to indemnify the policyholder for their losses and not to earn profits.
– Principle of Utmost Good Faith
This principle states that both the insured person and the insurance company must act in good faith when they are entering into an insurance contract. This means that the insured must disclose all relevant information to the insurer.
– Principle of Insurable Interest
This principle states that the insured person must have an insurable interest in the property or person that they are insuring. This means that the insured person must stand to lose something if the property or person is damaged or destroyed.
– Principle of Contribution
This principle states that if two or more insurance policies cover the same loss, the insurance companies will share the cost of the loss in proportion to the amount of coverage they each provide.
– Principle of Subrogation
Once the insurer has paid a claim to the insured, the insurer is subrogated to the rights of the insured. This means that the insurer can now pursue the person or entity that caused the loss to recover the money that it paid to the insured.
– Principle of Proximate Cause
The insurer is only liable for losses that are caused by a proximate cause. This means that the loss must be a direct and foreseeable result of the insured event.
– Principle of Loss Minimization
The insured has a duty to minimize their losses. This means that they must take reasonable steps to prevent or minimize the amount of loss that may occur.
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Conclusion
Understanding Insurance: Insurance is an important financial product that can help to protect you against financial loss. There are many different types of insurance available, each with its own set of benefits and features. For instance, you can purchase travel insurance prior to leaving on a vacation or business trip. It provides you coverage for medical emergencies, loss of baggage, emergency evacuation, and much more. Claims are subject to terms and conditions set forth under general insurance policy.
