Insurance is a contract between an individual and business with a company. This company is the insurance company and the contract involves the individual or business paying a stipulated amount of money (called premium) for a property or for oneself.
The contract also involves the insurance company paying a percentage of the individual or business’s loss peradventure it occurs.
The insurance sector has experienced a boom in the recent past as many people have seen the importance of insuring a property or oneself. You can insure property and oneself and there are so many types of insurance as we will see in this post.
How does insurance work?
Many people often find it hard to understand how insurance works. An insurance company has so many clients who pay their premium on the stipulated time. With this pool of money, peradventure one of their clients experience some loss, the indemnity (the money given to the client if he or she experiences loss) is gotten from this pool of money.
For example, if I insure my house with a net worth of rebuilding of $300,000 with a premium of $1200 per year, and peradventure fire guts the entire neighborhood, all I have to do is to file a claim of $300,000 and the insurance company will pay me $300,000 – $1,200 = $298,000 with which I will rebuild my house.
Types of insurance
Life insurance: this is a type of insurance in which someone pays a certain premium for his or her life. This type of insurance is meant to protect those who depend on someone peradventure the person dies. That is, if the person who insures his or her life dies, the person’s family or beneficiaries are paid so as to have an income that replaces yours.
This type of insurance can also include medical, funeral and other related costs associated with your death.
Car insurance: as the name suggests, it is a type of insurance in which someone or a company insures their cars. This type of insurance protects the car owner or the company from costs peradventure the car has an accident and often covers some other costs like that of treating injuries of people involved in the accident and property damaged in the process.
There are various forms of car insurance and this depends on the insurance company.
Health insurance: this type of insurance is most times mistaken for life insurance but they are not the same. Health insurance is insurance for medical expenses if the person falls sick or is to undergo some medical surgery. The insurance company either pays directly to the hospital or health clinic for the expenses or you get reimbursed if you spent from your pocket.
This type of insurance is sometimes covered by a company that employs someone if the country involved does not have a working health insurance system for its citizens.
Home insurance: this type of insurance is also known as homeowners insurance and is the type of insurance that covers losses and damages to an individual’s house and the assets therein.
Like the other types of insurance, there are different policies in this type of insurance and they include protection on fire, windstorm, flood, burglary, and others.
Retirement insurance: this is a type of insurance in which someone pays a premium while he or she is working so as to enjoy a comfortable life when he or she retires. The worker is paid some money maybe monthly from which he or she would take care of his or herself and family. In most countries, however, this type of insurance is covered by the government and is known as a pension plan.
Note: most of these types of insurance (except retirement insurance obviously) requires you the insured to provide a proof that what you claim actually happened to you property or to you.Also, it is important that you calculate very well of potential risks that are likely to happen to you or your property and insure against it and not just to insure against something that you know will not happen.
In our next post, we will be looking at the benefits of each and every type of insurance discussed above. Share with friends and comment what your feel about this.