What You Should Know About Insurance

The equitable transfer of the risk of a loss from one entity to another in exchange for a premium is called Insurance. This can be thought of as a guaranteed a known loss to prevent a larger or a devastating loss. An insurance involved two parties, the insurer and the policy holder.

An insurer is a company selling the insurance. It is the company that takes the risk of whatever damage is incurred in a certain event or whatever happens to a policy holder in any situation. The policy holder is a person or an entity who buys and insurance. He pays an insurance rate to the insurer. An insurance rate is a factor rate used to determine the amount of insurance coverage, which is called the premium. The insurance observes some principles. To mention some are;

1. Insurance has a large number of homogenous exposure units. In this principle the insurance provides a vast majority of insurance policies for individual members of a very large class. A typical example of this is the large number of policy holders working in a certain company, wherein premiums are paid by the employer sometimes, if not premiums are deducted from their salaries.

2. Definite Loss. This principle says that in the event when the death of an insured person occurs, the cause is known, the place where it took place should be definite and also the time of death is known. The report made should state all these so that the insurer can act.

3. Accidental Loss. The insurance has the principle that when an accident happens it should be proven that the said accident was beyond the control of the beneficiary of the insurance. Meaning it happened without any malicious intention.

4. Large Loss. There is a small chance of paying big costs unless protection offered has real value to the owner. The size of the loss must be meaningful to the policy holder. The premium needs to cover both the expected costs of losses and the administering policy.

5. Affordable premium. The premium is not so exorbitant that the person who wishes to purchase the insurance for his protection can afford to pay. Likewise the insurer can also pay what is due to the policy holder in case something happens.

6. Limited risk of catastrophically large loss. The insurance has collective or aggregate risks. The insurer’s ability to issue policies can be constrained or hindered not by factors surrounding the policy holders but by the factors surrounding the sum of all policy holders. Thus the insurer limits their exposure to a loss from a single event. Today, though there a lot of insurance companies that sell various kinds of insurance, the policy holders have always the right to be informed of the policies that they have. A person who wishes to purchase any insurance should be aware of the coverage of the premium that he pays.