Insurance is a contract, in the form of a policy, in which an individual or entity receives financial protection and/or compensation against losses from an insurance company. Insuring something means diverting the burden of payment for its loss from a personal responsibility to one that the insurance company bears on your behalf, in a certain percentage, depending on the type of insurance you have.
The insurance company relies on calculating the probability of a loss or damage to an insured asset. If there is a high probability, then the insurance cost tends to be expensive; on the other hand, if the probability is low, the insurance cost tends to be relatively cheaper.
Let's start with the basics.
As stated briefly above, an insurance policy is a contract between you and an insurance company. This policy outlines your agreement's details and determines the claims that the insurer is legally required to pay in exchange for a premium. It essentially states that the insurer must pay for any loss or damage caused by risks covered under the policy.
An insurance premium is a certain amount of money that you need to pay periodically in exchange for the maintenance of your chosen insurance policy. If you are unable to pay the premium, the insurance policy will be forfeited. If this happens and you decide you would like to keep your coverage, you may be required to pay a fine or charge a higher premium accordingly.
The insurance company relies on calculating the probability of a loss or damage to an insured asset
There are many different types of insurance. Though it is possible to divide them into two basic categories, under which the other types of insurance fall, the two categories are:
Life insurance is a contract between you and an insurance company where, in exchange for premium payments paid by you during your lifetime, the company will pay a sum of money to your beneficiaries after your death.
Health insurance covers medical expenses that may arise due to illness. These expenses could entail costs of hospitalization, cost of medicines, or medical consultation fees.
These insurance types are primarily based on individuals, although some countries go one step further and provide pet insurance. This is because, at times, the cost of medicines and veterinarian visits are higher than the costs of individuals.
This type of insurance reimburses an individual or business and protects a physical property against loss from theft, fire, natural disasters, etc. Property insurance covers the building or structure itself as well as its contents, whether personal or corporate, including furnishings, inventory, and other items.
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