Although insurance may seem complicated, the basic principles are quite simple. Insurance companies consider the risk of any eventuality and the potential consequences related to that risk. For example, if they insured a car, what could go wrong? Theft from the car, or of the car itself? An accident? What would the company need to do if the car WAS in an accident? Replace a bumper? Or perhaps they would have to replace the car and pay for hospital bills?
Based on past experience, the company will calculate the how much a customer needs to pay to provide cover against any of these eventualities. This is called the 'premium'. If the event that has been insured against happens, then the company will pay out the agreed level of the claim.
Insurance is a means of letting people minimise their individual financial cost by combining their possible losses with that of others.
Some kinds of insurance are compulsory - for example, you must insure your property to obtain a mortgage, and you need to be insured to drive. When deciding to buy other insurance products, you have to consider what effect the event you'd be covered against will have on you, or your family. This way you can assess whether or not it's worthwhile obtaining cover.
Anytime you have questions concerning your policy or a policy you are about to purchase, contact your insurance company or agent. It is their job to ensure that you completely understand everything about your policy.
Favourites (IE)
Print This
Email This
