INSURANCE

A lot people and families buy any of the types of Insurance policies such as car, home owners, renters etc but do not know anything or much about them and its workings. This is going to be our focus in this article.

Meaning of insurance

Insurance is like any other types of contract. It is a contract between an insurer and a Policyholder, wherein the insurer undertakes to provide financial protection to the policyholder while the Latter receives financial indemnity or reimbursement against losses from an insurance company subject to the payment of the applicable premiums. It is all about the protection against the risks of financial losses, loss of properties, life, and injury to self or even to third parties or their properties, animals / pets and so on.

Furthermore, it is a way to manage your risk. When you buy a policy, you purchase protection against unexpected financial losses. The insurer company pays you or someone you choose if something bad happens to you. If you have no coverage and an accident happens, you will be responsible for all related costs such as costs of repairs, medical bills etc. Insurance is equally a contract in which an insurer indemnifies another against losses from specific contingencies or perils. It helps to protect the insured person or their family against financial loss. There are many types of policies. Life, health, homeowners, and auto are the most common forms of insurance.

Types of Insurance

There are many different types of insurance but some of the most important ones include;

Life Insurance

Life insurance policy is a type of insurance which guarantees that the insurer pays a sum of money to specific beneficiaries of the policyholder when he dies in exchange for the premiums he has paid during his lifetime.

Health Insurance

Health insurance is a type of policy which exists to cover your costs of medical care which may be fully or in part. It requires the insurer company to pay some cost as per limit in the policy of the policyholder’s health care expenses in exchange for his premium. Health insurance pays for medical, dental, surgical, drugs; it equally reimburses the policyholder for expenses arising from treatment of injuries or may pay the health care provider directly depending on the terms of the policy.

Home Insurance

This type of insurance policy provides protection to your home and possessions against damage or theft. Virtually all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property and won’t make a loan or finance a residential real estate transaction without proof of it

Car Insurance

Car insurance is a type of insurance policy that affords coverage in the event your car sustains damage in an accident or is stolen, vandalized, or damaged by a natural disaster.

Travel Insurance

Travel insurance is a type of insurance that covers the costs and losses you sustain the course of travelling. It is useful protection for those travelling domestically or abroad.

Advantages

Insurance is very beneficial to individuals, organizations and society in more ways than we can imagine. Some of the advantages of having an insurance policy include;

Indemnity for losses to the policyholder:  An insurance policy is a contract used to indemnify individuals and organizations for financial losses which enjoy the protection of the Policy.

 Insurance provides payment for financial losses when they occur.  Therefore, you will not need to pay them out of your pocket in the event it is a comprehensive coverage or partly if your coverage is not comprehensive. These all depends on the terms of your insurance policy.

It promotes risk control mechanisms. This is possible through the provision of incentives to implement loss control by insurance companies like no claim bonuses.

Makes efficient use of policyholder’s funds as it makes it unnecessary to set aside a large amount of money to pay out of pocket for economic losses.

Insurance policies can is usable as collaterals to secure loans. It provides avenue for savings plan and or investment funds.  Insurers collect premiums in advance, invest them, and pay claims if they occur. For instance, most permanent life policies have the ability to build cash value over time.

The last benefit of insurance is reducing social burden.

Disadvantages

Insurance also has some demerits in it some of which includes;

1.  It may take a long legal procedure for filling and receiving your claims.
2. Some insurance policies, such as life and health insurance, do not cover sick or elderly people in most cases.
3.  Potential crime incidents. If the time and procedure to make claims takes a lot long time, the users of the policy may resort to commit crimes to get their indemnity.
4.  Temporary and Termination. Insurance is temporary and will be terminated when the individual no longer belongs to the group.
5. Premiums can be Expensive. Often, the cost of premiums is high but can vary depending on the policy and other factors. However, if you buy your policies at the right time, for instance, buying life policy at a very young age, for the right reasons, and with the right coverage, you will be able to get the best price.
6.  Rise in Subsequent Premium. You should keep an eye out for the different premium prices offered by various insurers. Determine at the beginning whether or not your premium will be fixed or if the rate of inflation will change from time to time. The premium depends on your medical profile, medical history, and age. If these factors are identified to increase your rate of death, life insurance may charge you more for coverage.
7.  Annoying and Frustration. Due to the amount of time it takes to process claims, beneficiaries of a policy and policyholders may become annoyed and frustrated. .

Insurance Policy Components

When choosing a policy, it is important to understand how it works.

A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs. For instance, whole life may or may not be the right type of life insurance for you. Three components of any type of policy are crucial: premium, policy limit, and deductible.

Premium

Premium is the amount of money payable to an insurer company for the policy it issues in coverage to your risks, perils, exigencies or uncertain future loses.

A policy’s premium is its price, which is usually paid monthly or otherwise depending on your agreement with your insurer. The criteria for determining the cost of your premium by your insurer is on the basis of your business’s risk profile, which may include creditworthiness as well as other connected factors.

For example, if you have plenty luxurious cars and have a history of reckless driving, you will likely pay more for a car policy than someone with a single midrange sedan and a perfect driving record.

 Policy Limit

Policy limit is the highest amount indemnity that an insurer will pay under a policy for your coverage. The policy limit may be set per period. For instance, annual or policy term, per loss or injury, or cover the life of the policy. This is also known as the lifetime maximum.

However, it is worthy of note the higher your policy limits, the higher your premiums. For general life policy, the highest amount that the insurer will pay refers as the policy face value. This is the amount payable to a beneficiary upon the death of the policyholder.

Deductible

Deductibles are the specific amount that the policyholder must pay out of pocket before the insurer pays his claim. The essence of Deductibles is to discourage policyholders from filling small and insignificant claims. Deductibles are usually applicable per policy or per claim. However, all depends on the insurer and the type of policy in issue. Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.