Insurance
Insurance is the form of risk primarily used to hedge against the risk of a contingent,uncertain
loss. Insurance is defined as the equitable transfer of the risk
of loss,from one entity to another in exchange for payment.
● an insurer is a company selling the insurance.
● The insured ,or policyholder is the or the entity buying the insurance policy.
● the amount to be charged for a certain amount of insurance coverage is called the
premium.
What is Insurance?
insurance is a means of guaranteeing you financial protection against various risks.
In exchange for a relatively small payment, you gain protection against a potentially large loss.
Some examples of a large loss would include your house burning down or spending weeks in the
hospital recovering from an automobile accident.
Important Insurance Related Terms:
We are going to discuss some important terms related to insurance. These terms include:
insurance policy, premium, coverage limit, and deductible.
We will also examine specific types of insurance including: auto, homeowners, property, life,
health, and disability.
What is an Insurance Policy:
This is a written contract detailing what an insurance company will cover, how much it will pay,
and how much you will pay.
What is a premium?
This is the amount of money that you pay for an insurance policy.
Premiums can be paid monthly, quarterly, semi-annually, or annually.
The premium is based on the type and amount of coverage you choose and varies from one
insurance company to another.
Factors that affect insurance premiums:
These include:
Your age
Marital status
Whether you live in an urban or rural area
Your credit history
Also, each special type of insurance is going to consider other factors.
Coverage Limit:
This is the maximum amount the insurance company will pay if you file a claim.
It is important that you select an appropriate coverage limit because any amount over your
coverage limit becomes your responsibility.
● An example of this would be if you were insured with a coverage limit of $50,000 and a
claim against you was for $60,000. You would be responsible for the additional $10,000.
Deductible:
This is the amount of a loss you must pay out of your own pocket before the insurance company
will step in and pay the rest.
An example of this would be if you were in an auto accident and it caused $1000 worth of
damage and your deductible was $500.00. After you paid the initial $500.00, the insurance
company would then pay the remainder of the bill.
Fixed amount or percentage of an insurance claim that is the responsibility of the insured, and
which the insurance company will deduct from the claim payment. Sometimes deductibles are
voluntary (to qualify for a lower premium rate) but usually they are imposed by the insurer to
avoid paying a large number of small claims.
Auto Insurance:
This is insurance that protects your financial interests in the event that you are involved in an
automobile accident.
It is extremely important to have automobile insurance because the damage done to your or
another’s vehicle can be extremely expensive to repair.
Also, if you hurt someone else while driving, there’s virtually no limit to what they can sue you
for.
Homeowners/Property Insurance:
This is insurance that protects you financially if your house is damaged.
Also, this type of insurance protects your possessions that are located within your home.
Renters insurance protects your property within a rented home or apartment.
Life Insurance:
This type of insurance provides financial support for the people who depend on you in the event
of your untimely death.
There are different types of life insurance policies. Some of these are designed to just provide
insurance benefits (term), while others (whole life, variable life, universal life, etc…) are designed
to serve as insurance and a type of investment.
Health Insurance:
This type of insurance pays medical bills when you or your family becomes sick or injured.
You can purchase an individual health insurance policy for yourself and your family, but its
usually much more expensive than the coverage an employer offers.
Disability Insurance:
This type of insurance pays you an income when an illness or injury prevents you from working
for several weeks or even years.
Disability insurance is often a type of insurance that people don’t purchase. However, according
to the NAIC, people in their 30s are three times more likely to suffer a disability than they are to
die.
Insurance is form of risk management primarily used to hedge against the risk of a
contingent,uncertain loss. Insurance is defined as the equitable transfer of the risk
of loss,from one entity to another in exchange for payment.
● an insurer is a company selling the insurance.
● The insured ,or policyholder is the or the entity buying the insurance policy.
● the amount to be charged for a certain amount of insurance coverage is called the
premium.
insurer
insured
premium
policy
subject matter
insurable interest
insurable risk
the subject-matter is life in the life insurance, property and goods in property insurance, liability
and adventure in general insurance. Insurable interest is essentially a pecuniary interest, i.e., the
loss caused by fire happening of the insured risk must be capable of financial valuation.
Insurable and Uninsurable risk:
Eventuality for loss or damage that is (1) definable, (2) fortuitous, (3) similar to a large number of
known exposures, and (4) pays a premium that is commensurate with the potential loss.
● Condition or situation that fails to meet the requirements of an insurable risk, such as
where a loss is inevitable (as the death of a patient suffering from a terminal illness) or
where the damage is gradual (as corrosion or rusting of metals)
1. personal of life insurance
2. Property insurance
3. liability insurance
4. guarantee insurance
DEFINITION of 'Liability Insurance:
Any type of insurance policy that protects an individual or business from the risk that they may
be sued and held legally liable for something such as malpractice, injury or negligence. Liability
insurance policies cover both legal costs and any legal payouts for which the insured would be
responsible if found legally liable. Intentional damage and contractual liabilities are typically not
covered in these types of policies.
Meaning of guarantee insurance:
A guarantee insurance is a type of insurance contract where the insurer agrees to indemnify the
insured for a fixed sum against losses through fraud, dishonesty and breach of contract by a
third party. The most important feature of this contract states that the insurer stands as a surety
against the action of a third party. The bright examples of guarantee insurance contracts are
credit insurance and fidelity insurance.
Risk management:
Risk management is the continuing process to identify, analyze, evaluate, and treat loss
exposures and monitor risk control and financial resources to mitigate the adverse effects of
loss.
● The identification, analysis, assessment, control, and avoidance, minimization, or
elimination of unacceptable risks. An organization may use risk assumption, risk
avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies)
in proper management of future events.
Risk may be of -
financial risks such as cost of claims and liability judgments
operational risks such as labor strikes
perimeter risks including weather or political change
strategic risks including management changes or loss of reputation