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    What Is Insurance and Why You Need It!

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    FACTS- WORLD
    Insurance is a risk transfer mechanism where individuals pay premiums into a pooled fund that is then used to cover losses experienced by a few members. It protects against unexpected financial losses from events like accidents, illness, death or property damage. The main principles of insurance are utmost good faith between parties, the insured having an insurable interest, and indemnity to return the insured to their pre-loss financial position. Insurance companies operate profitably by collecting premiums from many members and investing the funds to pay future claims while also providing a promised payment to beneficiaries or policyholders.

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    What Is Insurance and Why You Need It!

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    FACTS- WORLD
    88 views2 pages
    Insurance is a risk transfer mechanism where individuals pay premiums into a pooled fund that is then used to cover losses experienced by a few members. It protects against unexpected financial losses from events like accidents, illness, death or property damage. The main principles of insurance are utmost good faith between parties, the insured having an insurable interest, and indemnity to return the insured to their pre-loss financial position. Insurance companies operate profitably by collecting premiums from many members and investing the funds to pay future claims while also providing a promised payment to beneficiaries or policyholders.

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    What-is-Insurance-and-why-you-need-it

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    Insurance is a risk transfer mechanism where individuals pay premiums into a pooled fund that is then used to cover losses experienced by a few members. It protects against unexpected financial losses from events like accidents, illness, death or property damage. The main principles of insurance are utmost good faith between parties, the insured having an insurable interest, and indemnity to return the insured to their pre-loss financial position. Insurance companies operate profitably by collecting premiums from many members and investing the funds to pay future claims while also providing a promised payment to beneficiaries or policyholders.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    88 views2 pages

    What Is Insurance and Why You Need It!

    Uploaded by

    FACTS- WORLD
    Insurance is a risk transfer mechanism where individuals pay premiums into a pooled fund that is then used to cover losses experienced by a few members. It protects against unexpected financial losses from events like accidents, illness, death or property damage. The main principles of insurance are utmost good faith between parties, the insured having an insurable interest, and indemnity to return the insured to their pre-loss financial position. Insurance companies operate profitably by collecting premiums from many members and investing the funds to pay future claims while also providing a promised payment to beneficiaries or policyholders.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    What is Insurance and why you need it!

    What is Insurance?
    Insurance is a risk transfer mechanism. It is a method of shifting the responsibility for
    losses to specialists called insurance companies who handle the risk by spreading it over
    a large number of people or firms. Insurance can help you cover the cost of unexpected
    events such as theft, illness or property damage. Insurance can also provide your loved
    ones with financial payment upon your death.
    It is important to understand that the primary purpose of insurance is to protect you
    from unexpected financial loss due to unfortunate events. In case of life insurance, you
    can purchase products which have a savings option in addition to the protection
    component i.e. the insurance company pays the predetermined amount to the policy
    beneficiary in case of death/ disability and if no unfortunate event happens, then at the
    time of policy maturity, you get the accumulated value of the premiums that you had
    been paying to the life insurance company during the tenure of the policy, along with
    the bonus/ profits in accordance with the product type and terms of the insurance
    policy.

    Principles of insurance
    The main motive of insurance is cooperation. Insurance is defined as the equitable
    transfer of risk of loss from one entity to another on the payment of a specified
    premium. The essential principles of insurance are as follows:
    o Utmost Good Faith: Both parties should enter into the contract in good faith.
    Insured should provide all the information that impacts the subject matter, while the
    Insurer should provide all the details regarding the insurance contract.
    o Insurable Interest: Insured must have insurable interest in the subject matter. For
    example, in case of life insurance, spouse and dependents have insurable interest in
    the life of the person insured. Insurable interest must be present both at the
    commencement of the policy and when any claims are made.
    o Indemnity: It is the security or protection against a loss or other financial burden.
    For purposes of insurance contracts, this could be viewed as financial compensation
    sufficient to place the insured in the same financial position after a loss as he
    enjoyed immediately before it occurred.

    How does insurance work?


    Insurance companies work on the basis of pooling of risks. A number of individuals
    agree to pay certain sums of money called premiums to create a pool of money, which is
    then used to pay the losses of the few caused by events such as fire, accident, illness, or
    death. For example, a large group of people who wish to get life insurance will pay their
    premiums into a pool. Of course, not all will suffer from the loss at the same time.
    Accordingly, the insurance companies are able to operate profitably by investing the
    part of the collected premiums not required for claim settlement.
    The details of insurance protection, such as exactly which events are covered and for
    how much, are defined in the insurance policy. The insurance policy is a contract
    between you and the insurance company. You pay a fee called a premium and in
    exchange the insurance company agrees to pay you a certain amount of money, if the
    event you are insuring against is covered, and happens during the term of the policy.

    Why should I get insured?


    Insurance can protect you against financial loss if something unexpected happens.
    Accidents and disasters can and do happen, and if you are not adequately insured, it
    could leave you in financial ruin. When you buy insurance, you transfer the cost of a
    potential loss to the insurance company in exchange for a fee known as the premium.
    Insurance companies invest the funds securely, so they can grow, and are able to pay
    claims as they arise. The decision to get insurance will depend on your circumstances
    and your stage in life.
    Examples of insurance protection include:
    • Automobile insurance: This will pay for the cost of repairs to your vehicle if you have an
    accident or pay you the insured value, if your vehicle is stolen.
    • Life insurance: This will pay your family on your death/disability. If neither of the
    calamities occur, you get a promised sum assured upon the completion of your policy
    term.
    • Property insurance: This will pay for the cost to repair your property in case of fire or
    damage by causes as stated in the policy terms. Insurance can be obtained for both
    residential and commercial property.

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