Aug 10 2008
All about basics of insurance
Insurance is an arrangement between two parties whereby one party (normaly the insurance company)agrees to idemnify the loss suffered by other party (insured) because of any unforeseen event. Loss may be by act of God or human being.
Insurance may be classified basically into two categories namely life and non life. So any insurance which is not related to life is classidied as non-life insurance or commonly know as general insurance. As the name suggests, in life insurance the insurance company pays to the legal heirs of the deceased person. How it works is through a contract. The insured enters into a contarct with insurance company whereby it is agreeged that in case of death or disability of the insured, the insurance company will compensate insured or his family members with cetain amount of money.
On the other side, general insurance can be on any nature. Most commonly knows as auto insurance, marine insurance, pet insurance, home insurance, health insurance, business insurance etc. For example if you fall sick and have to spend a lot on medical treatment certainly it would be lot of burden on your pocket. How medical insurance works is that in case of medical expenses the insurance company reimburses you the actual expenses incurred on your medical treatment.
Now all these benefits does not come free. Naturally there is a cost attached to it which normally referred to as insurance premium. It is the small amount which is paid to insurance company for the services it offers. In life insurance, in case the insured survives till the end of the period of insurance tenor, the premium paid is returned along with some returns (although they are lower that returns earned on other types of investments). However, in case of general insurance the premium does not come back to the insured after the expiry of the contract period.
For insurance company, the premium is decided on the basis of cost of operations, probability of payment to the insurance (which is checked through past date and experience), and required return to be generated.
Some people leave the risk of loss to destiny and dont get an insurance cover however some people want to hedge the risk of loss due to any reason and get the things insured. So it is all personal / individual choice whether to for insurance or not.
We recommend that we must get an insurance cover for most of our things and most importantly life.