A typical question that always comes to mind is: what is insurance? In general, insurance covers losses that may happen in the future. These losses are those unnecessary and unwanted incidents that may pass through life. Insurance is a way to manage the risks that may affect both life and property. That is why insurance should be at the foremost of your mind if you are able to afford it.
There are at least two parties in an insurance contract: the insurer and the insured. The insurer is the one who assumes the loss in case an unfortunate event happens which must be a peril that has been insured against. The accident or unfortunate event that has caused loss, damage, or injury must be one of those that have been covered by the insurance policy. The insurance policy is the document that embodies the provisions of the agreement between the insurer and the insured. The insured, on the other hand, is the person who buys the insurance contract and through it, passes the risk of loss to the insured in case the conditions set up in the contract of the insurance are all complied with.
Knowing what is insurance is recognizing the options that you have in the protection of your interests, such as your life, someone else’s life, and your property. When you purchase an insurance policy, what you are doing is transferring the risks that you have to an entity which is doing an insurance business. Doing an insurance business means that such entity is undertaking to compensate the one insured with the losses that he or she might suffer along the way. The one doing an insurance business is called the insurer. The insurer may be an individual, a corporation, or a partnership that has been registered with the proper authorities to fully and legally exercise the rights and obligations of an insurance business.
In some cases, an insurance subscription is required by the local authorities to be able to permit certain operations, such as the driving of motor vehicles, the ownership of homes, the operation of certain businesses, and travelling to other places.
Now to fully understand what is insurance, you must be able to know how it works. The ultimate mission of insurance is to provide you the peace-of-mind that you need to sleep well at nights. Without insurance, the potential risks of loss are just too great and overwhelmingly complex to be dealt with on your own.
Here is how insurance works. The insurance companies collect a number of subscriptions from a certain group of people who are under the same conditions with the same plight and circumstances. They are supposed to be exposed to the same risks. Upon subscription, the insurance company shall be collecting premiums from the people insured. The insurance firm knows that in a given year, the total collection of premiums would be able to cover the cost of the claims that will be made by a few numbers from the group who unfortunately and actually suffer a specified type of loss.
To identify what is insurance is to know its different kinds. Remember that anything which may be valued may be insured.
One of the many kinds of insurance is the auto insurance. This protects the policyholder or the insured from potential financial loss in case of accident and other unfortunate events involving his or her vehicle. A typical example is one who figures in a traffic collision. A typical auto insurance coverage includes property, liability, and medical coverage. The property coverage usually covers losses due to damages to the car or theft thereof. The liability coverage, on the other hand, covers the legal responsibility arising due to bodily injury and/or property damage that have been suffered by a third-party. This third-party is one who is not directly involved in the accident but has nevertheless suffered an injury due to causes which are connected to it. In most countries, auto insurance is a necessary requirement before one can be legally allowed to drive a vehicle.
Life insurance is the most popular kind of insurance. It provides a financial benefit to the surviving family of the insured decedent or to any named beneficiary. The proceeds of a life insurance will be awarded to anyone who has been named under the contract according to the terms stated therein. Oftentimes, the contract provides that the proceeds of the insurance policy shall answer for the burial expenses. Life insurance is a protection against financial sufferings in case of the insured’s untimely or early death. In most countries, the proceeds of a life insurance policy is a non-taxable entity. Hence, life insurance may also be recognized as a tax-efficient device for saving money.
Another common kind of insurance is the property insurance. This type of insurance comes in many forms, such as fire insurance, flood insurance, home insurance, marine insurance, aviation insurance, and crop insurance, among others. These all serve as protection against losses and damages that may arise involving such specific kinds of properties. This is a broad category that may include every and any kind of property existing at the time of subscription that may be valued.
Liability insurance is one of the most important kind that many people subscribe to as it covers almost all legal claims that may be brought against the insured. Note in this case, however, that the coverage of a liability insurance policy usually includes only those are resulting due to the insured’s negligence and it excludes those arising from his or her willful and intentional acts. There are two aspects of protection that a liability insurance policy offers: it may become a legal defense that the policyholder may raise in the event that a lawsuit is commenced against him or her, and it may serve as a form of indemnification in case of a verdict or a pronouncement of judgment against him or her in the court of law.
Other kinds of insurance include credit insurance, all-risk insurance, and media liability insurance. For further information on what is insurance, you may talk to a trusted insurance agent about the different kinds of insurance policies and what can be the most suitable type for your specific circumstances.