Have you wondered what is insurance and why do we need it? You probably have thought about this whenever you have sent a monthly payment to your insurance company. Here is a guide to help understand the important role that insurance plays in our life.
What’s Insurance?
Insurance is basically an agreement between the person insured and the insurance company (insurer) that provides the coverage. A signed policy guarantees that the insurer will compensate the individual for an unpredictable loss in exchange for a predictable payment from the insured individual. The insurance policy designates under what conditions the policy will pay the insured for the loss.
This exchange can be described as a fair transfer of a risk between the individual and the insurance company. The individual assumes a small loss in the form of a regular payment while the insurance company agrees to pay for a huge loss that may or may not happen.
Insurance coverage falls into several categories such as property, liability, professional and business.
Property
This insurance guards against damage being done to your physical property. Typically property insurance includes and excludes particular types of circumstances known as perils. The event of war is an example of an excluded peril. When the “911” devastation occurred President Bush declared “War” and in affect forfeited the insurance coverage in lower Manhattan. Several other perils that are usually excluded include damage caused by:
- Nuclear incidents
- Acts of terrorism
- Earthquakes
- Floods
You can add “open perils” coverage. This will cover the causes of loss that are not named in the original property insurance policy.
The perils that are covered are known as “named perils” and are written in the policy. Most policies will cover damage resulting from:
- Fire
- Lightning
- Explosion
- Theft
Liability
Most of us have known individuals that will sue another person for almost any reason. You might think of liability insurance as protection from others trying to sue you. The liability insurance company will provide you with the exact sum of money that you have become legally required to pay. It might involve going to trial in court. However the insurance company will usually settle out of court to get it taken care quickly and for less expense.
For instance if a guest slipped on the ice on your walkway they may sue you for negligence because you did not have sand over the ice. The insurance company may offer to pay for their medical expenses, pain and suffering and any income they lost due to the accident.
Professional
A professional insurance policy most often covers lawyers, accountants, doctors and engineers. This offers them financial protection in case they make a wrong decision or provide advise that harms an individual. Malpractice is an example of one type of professional coverage. The typical premium for obstetricians and neurosurgeons is $100,000.
Why Do We Need Insurance?
Many people are seeking ways to reduce their costs in this present economy. Since the cost of insurance is going up people are questioning if it is necessary. Here are several reasons why it is vital to have insurance.
Accidents can occur any time. This is the primary reason why you should have insurance. If a person enters yourhome and steals your television the insurance company usually will replace it.
You can not control the weather. Hurricane Katrina caused millions of people in Louisiana to lose their homes. Insurance gives you a chance to recover from these type of natural disasters.
Unfortunately there are individuals that cause accidents because of their negligence. They might have drank too much alcohol and then try to drive home. If they hit your car the insurance company will cover you right away.
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One Response to “What Is Insurance And Why Do We Need It?”
Few tips I have discovered whilst finding insurance over the years: Put another person on your insurance
This is a simple tip for younger drivers, especially under 25′s. Find an older person and put them as a second driver on your insurance. This works best if you can find a female in her 40′s or 50′s. Why is it cheaper? Simple;