Insurance, in the simplest terms to describe it, is risk management. It refers to the transfer or compensation of loss in the form of money by an entity, in exchange for a periodical premium that had been paid. Therefore, an insurer is the company who sells the insurance, they may also be known as the Insurance Company. On the other hand a person who buys the insurance, that is, agrees to pay a periodical premium to the insurer in exchange for a guarantee of being compensated for loss if the need arises, is known as the insured or also as the policy holder. The premium charged depends on the Insurance rate of the particular Insurance Company. Claims, finally, is the utility of the insurance. It is in fact hoped by both the insurer and the insured alike that the claim never materializes, that the loss to be compensated for never occurs. Usually when the situation takes place that a claim is made, the Insurance Company sends an official to carry out a thorough investigation of the circumstances, who finally determines the amount of money to compensate with for the claimant and then authorizes the payment.
Any risk that can be qualified can actually be insured for. One policy can however cover risks of one category or more, for example, if the insurance for a vehicle was to be made, it would cover two other kinds of risks, property risk which refers to the compensation for if it ever got stolen, and liability risk, to cover legal claims incase of an accident. However there are several categories for each kind of insurance, with its own regulations and features.
Vehicle Insurance refers to the contract between you and the Insurance Company, by which you would have to pay the agreed premium periodically while the company will have to pay for your losses depending on the terms of the policy. There are some usual features for a vehicle insurance policy. They cover property risk, for if the car was subjected to robbery. Liability coverage refers to paying compensation on your behalf to others incase of any physical or property damage that you might have caused through your vehicle. They also provide for medical costs, for treatment of injuries and footing the medical bills in case of an accident and also sometimes pay for the lost wages of the insured if in an accident.
Home Insurance refers to the fact that your home is insured incase of damages to your residence due to destruction of any kind or some disaster, such as a fire, burglary and the kinds. In certain geographically risk prone areas, Insurance companies do not cover risks such as floods and earthquakes etc, they may have to be bought as additional policies. However, problems or damages to the house because of lack of maintenance do not fall under insurance policies.
Health Insurance refers usually to the covering of medical expenses by the Company for the Insured person. However, the amount of compensation that the Company will provide depends on the amount of premium paid and the terms of the policy.
Casualty Insurance insures people for the compensation for any kind of accident, which is not related to any particular property. Crime Insurance for example is a kind of Casualty Insurance which compensates the Insured for any loses that might be incurred due to some kind of criminal action carried out against him by somebody else, for example criminal acts like theft or embezzlement.
Life Insurance is the contract between the Insured and the Insurer which states that a monetary compensation would be paid to the Insured’s descendants or a specific beneficiary after his or her death. This is to compensate for the financial losses caused due to the death of the Insured. This kind of insurance allows for the beneficiary to receive the proceeds of the deed either in one go or on a periodical basis, known as Annuity. In countries like the United States, the law allows for tax on income caused by Insurance proceeds and annuities to be deferred, however this depends also on the terms of the Insurance Company and the final decision taken by the law.
Credit Insurance is the kind of protection that a Policy Holder may take to get assurance from the Insurance Company that all his outstanding credits that may have been caused due to loans he had taken would be paid for incase of unavoidable circumstances such as death or unemployment or bankruptcy etc. Mortgage insurance also falls under this category.
Besides those mentioned above, there are various other specific insurance policies to subscribe to according to requirements, such as Kidnap and Ransom Insurance, Pet Insurance, Travelling Insurance, Flood and Earthquake Insurance, Crop Insurance, Builder’s risk Insurance etc. These are all case specific insurance policies and provide compensation for the specific risks; however they might cover more than one policy.
Recently there has developed certain causes of concern such as moral hazards. This refers to the fact that it has been noticed that most people who have got themselves an insurance policy have become less averse to risk, insurance seems to have given them a security blanket. For such reasons, Insurance Companies have included in their terms certain clauses that would make them exempt from paying for the losses if it can be proved that the Insured engaged in behavior or practices that made them increasingly vulnerable to the risks of incurring loses.
It is understood that Insurance policies can be extremely complicated and difficult to grasp for the common man and several policyholders may not understand all the policies and terms and clauses, as a result of which they might end up purchasing an unfavorable policy for themselves because they did not understand the terms. Protecting such problems faced by people, several governments all around the world have laid out specific statutory rules in the way the policies may be advertised and the terms of the policies, to avoid any miscommunications.
