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Insurance is not an easy thing to understand. Everyone knows that they should have one. Or, at least, they get it because it's something that adults do. However, it's essential to understand what insurance is and how it's used.

What is Insurance?

Insurance is one of those rare products that everyone needs to have but hopes they won’t ever have to use it. Quite simply, we only use insurance when something bad happens, like an injury, property damage, or even death. Most people don’t want to think about such things happening, and in the process, they also neglect considering their insurance needs.

Why Insurance?

You might feel safe, but the reality is – there’s risk everywhere. You never know when something unexpected is going to happen. No matter how much we try to keep ourselves and our property safe, sometimes, it’s simply out of our control.

Insurance Definition

Insurance is a legal arrangement between two parties – the insurance company and the person that is being insured. The insurer (Company) agrees to cover the insured’s costs in case of unfortunate events that are previously outlined within the insurance policy.

Some typical examples of these events include sudden illnesses, property damage, traffic accidents, and so on. However, insurances don’t only cover unexpected events, but there are also policies designed to cover everyday events such as reaching a certain age.

Events that are covered in insurance policies are called insurance events. An individual that gets insurance is called an insured person. When the event happens, the insurance company is obligated to pay a predefined amount, and this payment is called the insurance claim or insurance benefit.

The insured person is also obligated to pay a certain amount each month for their insurance policy. The insurance claim is designed to help the insurer or their family go through a difficult period and cover the additional costs caused by the event.

Simply put, this means that getting an insurance plan is basically covering yourself from a particular risk.

When choosing an insurance policy, it’s important to consider how significant the risks are that you are covering for and whether it’s worth paying for them.

How Insurance is Paid

Insurance is a service meaning it comes at a price. When looking at the offers from insurance companies, they will often try and make it look like they are doing charity work, but they aren’t. Insurance companies agree to pay for insurance claims that are previously agreed upon within the contract.

They pay the claim when the insured event occurs. Insured people pay insurance premiums to get this kind of service. When you pay for insurance premiums and get an insurance policy, you become a policyholder. A single insurance premium can be paid in several ways:

  • As a monthly installment
  • Every quarter
  • As an annual installment
  • Or as a single payment which is a rare case

On top of that, insurers can charge their users with different types of fees. So, in a way, these are hidden costs that you simply need to check before getting an insurance policy. It’s imperative to see all of the expenses that your insurance carries and calculate how much you would have to pay in a worst-case scenario.

Always ask Insurance company if there are any fees and how high they go. Especially when getting life insurance. These policies come with very high fees during the first years.

How Insurance Works

So, the insurance company and the insured person enter a legal contract that binds both to fulfill their obligations. This contract is also known as an insurance policy. It has specific circumstances and conditions under which the insurer is obligated to pay.

In a way, an insurance policy protects the insured person and their close family members from an unfair loss of money. In general, the insurance premiums are usually a lot bigger than the money that the insured person has to pay. Insurance companies take the risk by giving broad coverage in return for much smaller premiums.

The reason why insurance companies take this risk is that this business model is profitable for them. A tiny percentage of people actually claim their premiums because nothing happens to them. Anyone can contact an insurance company, individuals, organizations, and companies.

However, the insurance company is the one that decides whether they want to give out an insurance policy. They will evaluate the application and decide if they want to step into the contract. It’s important to know that insurance companies won’t give out insurance to people that they mark as “high-risk.”

Insurance companies are also strict about paying out the premiums. People making claims need to be absolutely positive that they qualify for a claim.

Different Policies Are Designed for Different Needs

Things to Consider Before Getting an Insurance

When looking to get insurance, you need to know what to expect from it and have specific events in mind you want to be insured. For example, if you are planning on going on a holiday and want travel insurance, the type you choose depends on what kind of holiday you’re going on.

For example, if you are going on a mountain hike, you will need to find one that covers rescue service costs. On the other hand, if you are going somewhere abroad, look for travel insurance which covers medical expenses. As a foreigner, you don’t have medical insurance in countries you’re visiting.

This is just an example to show you how to approach the whole thing. To be adequately insured against some risk, here are some of the most critical factors you need to consider:

  • The event you want to be insured for.
  • The amount you want to get paid in case of the event and the amount you are willing to pay the company.
  • How long do you want the insurance to last?
  • Are you looking for insurance, or is someone persuading you to get one?
  • How to arrange your insurance?
  • The information sheet provided by the insurance company, where all the details are outlined.

Since we have outlined the essentials, let’s dig a little deeper, and see how you should approach getting insurance.

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Have Questions? Take a look Our FAQs

How do I know what an insurance policy covers?2019-10-22T20:50:10-05:00

Ask for all the crucial documents and go through them thoroughly. Go through terms and agreements, clauses, products, and coverage limits.

What kind of insurance should I get?2019-10-22T20:52:38-05:00

It all really depends on you. People often insure their businesses, personal valuables, homes, cars, and so on. It’s all about figuring out where you think the risks are and making sure that you will be able to handle them if they come true.

I keep seeing “liability,” what does it mean?2019-10-22T20:51:06-05:00

Liability is the term that represents personal responsibility for injuries or damages. In case you were driving your car while intoxicated and caused an accident, you are liable. The insurance company won’t pay for your injuries or damages, and you will have to cover them yourself.

How are insurance claims made?2019-10-22T20:48:08-05:00

Depending on the insurance company, a claim can be made in several ways. In most cases, claims can be made by email, phone, post, online, or by going directly to the insurance company. If you can, go and do it in person, it’s usually the fastest way.

Can I purchase an insurance policy online?2019-10-22T20:49:06-05:00

Yes, a lot of insurance companies offer application forms on their websites. However, we suggest that you do this in person as well. Apply for insurance online only after you’ve talked to the insurance company in person, and received all the important information about their services.

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