The Basics of Insurance
Everyone needs insurance protection in some form or another, whether it’s auto, medical, liability, disability or life. Insurances serves an important function in risk-management and wealth-preservation. Insurance is a critical component of every family’s financial well being.
Individuals and businesses buy insurance to protect against potential financial disruption.
With life insurance, if theprimary wage earner were to die without insurance protection, the family would be subject to severe financial difficulties as they would be left without an income. The same principle works for other forms of insurance.
Health or medical insurance is purchased to avoid unforeseen medical bills. Which can cost in the hundreds of thousands of dollars. Auto insurance is mandatory by law for every vehicle to protect against accidents and personal injuries. Homeowner’s insurance is to protect against vandalism, theft, fire and other natural disasters.
Insurance primarily is bought to protect against risk. Insurance companies sell policies to a large group of people. They use statistical analysis to calculate how many people in a given group will face losses at a given time. By determining how many claims will be filed in a given year, insurance companies can set their prices to allow for payment of claims, business operating expense and to make a profit for shareholders. For life insurance, companies use mortality tables to calculate how many people will die in a particular age group per year. All owners of vehicles must have auto insurance, however only a percentage will have an accident in a given year.
Some accidents are avoidable and many are unforeseen.
By buying insurance to cover against a particular risk, you transfer the burden of responsibility and monetary loss to the insurance company. Insurance companies are in the business to protecting their clients against such losses and have the capacity to compensate. And because some illnesses, accidents or disruptions in one’s life can be the cause of financial disaster, it is wise for everyone to consider purchasing insurances.
Insurance is to protect one’s family members against financial loss and disruption.
The insurance company underwriting department evaluates the risks of a particular insurance product. By calculating the average loss per claim filed against them, the insurance company determine how much the insured must pay to purchase the insurance product. Insurance companies make detailed inquiries about their clients depending on the type of insurance being purchased. Underwriters examine health records, driving history and characteristics of potential clients to evaluate risk.
The Insurance Policy is the contractual agreement between the client and the insurance company.
The policy is a legal document that sets out the conditions and agreement between the insured individual and the insurance company. It will also state the premium that the client must pay and the payout schedule.
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Insurance Basics – Part 2