What Is Insurance and How It Works?

Insurance refers to the contract in which the insured pays a premium to the insurer in accordance with a contract agreement, and the insurer is liable for compensation for the loss of property caused by the possible accident as stipulated in the contract, or for the death, disability, illness or when he reaches the age and duration agreed upon in the contract. In this article below, I will try to explain what Is insurance and how it works?

Insurance is a legal agreement through which an individual or organization (The Insured Participant) will accept to pay a certain amount (premium) to another organization (insurance company) in exchange for commitments on payment when an event in the policy occurs. Insurance is a form of risk management, a method of protecting individuals or businesses against accidental financial losses due to burnt assets, theft … (general insurance), loss of life (life insurance), labor accidents, traffic (accident insurance).

Why do I need Insurance?

Unfortunately, the journey of life will not always be easy. Unexpected things can interfere with our lives or prevent us from living every day with fullness. As for the expensive things, you can let the insurance cover your expenses.

Insurance allows you to focus on the most important things in your life because it gives you and your family financial security in the event of an unfortunate accident. When you have to cope with heavy financial burdens, such as hospitalization and medical expenses, insurance can help you deal with those costs and allow you to continue to follow your dreams.

When should I start thinking about insurance?

The sooner the better! When you get your first salary, it’s a good time to start accumulating your medical care and lifetime protection. Buying insurance early gives you peace of mind that you don’t have to pay expensive premiums. Choose the policy and premium that fits your needs and budget, and then change the coverage level of your policy as your needs change.

What kind of Insurance should I buy?

Take care of your family’s health before looking at life insurance that can protect your family’s financial situation in the event of an unfortunate accident. Finally, consider choosing an insurance policy that will give you and your family a future savings.

How much insurance protection is sufficient?

There are many health care, life and savings plans on the market that meet any budget and need. When choosing the right product for you, it’s important to keep your finances in check and make sure you save some of your money to deal with occasional or unexpected health crises. The amount of savings you need varies from person to person, and it’s best to talk to your financial advisor and ask them to give you the best advice. Factors you should consider include the stage of your life, your budget, and, to some extent, what you want to have in your life.

What are the elements in insurance?

Insurance is a two-party agreement between the insurance company and the customer (also called policyholder). The agreement states that, the insurance company receives insurance premiums to provide reimbursement to the policyholder in case of loss, damage / illness, or loss of life.

In insurance, there are three elements that become the main guidelines of the mechanism of risk reduction of the insured. What are the elements in insurance?

Let’s talk about it one by one.

1. Premium

Premium is an obligation that must be paid by the insured (which will be included in the insurance) to the insurance company. The obligation to pay this premium is a form of risk transfer service desired. If you’re on insurance, you’re going to have to pay this premium.

2. Insurance Policy

The party that pays the premium has the right to get a insurance policy document. The insurance policy itself is a contract letter or agreement issued by the insurance company to the insured. It contains all provisions that guarantee compensation for any losses incurred by the insured clearly.

3. Claims

Claim is a process of filing for indemnity request for the losses experienced. For example,for a car damaged in an accident, the damage is borne 100% (including replacement of the engine, body of the car, and others). The insured who registers the car with the insurance company, can make a claim if the risk has been insured and listed in the policy.

Many times, insured does not read his insurance policy, and when there is a loss experienced, he goes to the insurance company and asks for a claim, his claim is rejected because the risk was not covered in the policy. So it is very important to carefully read the insurance policy.

What are the different kinds of insurance products?

There are different kind of insurance products like health insurance, life insurance, education insurance, and general insurance.

Health Insurance

The health insurance guarantees the health or hospitalization costs of the insured member in case of sickness or an accident.

Life Insurance

Life insurance provides protection in case of risk of death to the policyholder. For example, providing long-term protection to the heirs of the policyholder.

Education Insurance

Education insurance can be said to be a future savings account that guarantees the education of the children of policyholders (parents). Usually, insurance premiums are paid from the time the child is born until the grace period specified in the agreement.

General Insurance

General insurance is a form of risk coverage that provides reimbursement to policyholders for general material losses experienced. An example of the general insurance is motor vehicle insurance.

Insurance Classification

Depending on the criteria, we can divide insurance into several types. There are many classification criteria for insurance, and the following five criteria are used here: the underlying insurance, the insured, the form of implementation, the way the business is underwriting, and whether it is profitable or not.

(1) Depending on the target of insurance, insurance can be divided into property insurance, life insurance and liability insurance. Under each large category, it can be subdivided into several small categories. For example, in property insurance, there are marine insurance, fire insurance, transportation insurance, engineering insurance, etc., in life insurance, life insurance, health insurance, accident insurance, etc., in liability insurance, there are employer liability insurance, occupational liability insurance, product liability insurance, etc.

(2) Depending on the insured, insurance can be divided into personal insurance and business insurance.

(3) Depending on the form of implementation, insurance can be divided into compulsory insurance and voluntary insurance.

(4) Depending on the mode of business underwriting, insurance can be divided into original insurance and re-insurance.

(5) According to the criterion of profitability, insurance can be divided into commercial insurance and social insurance.

What is a insurance contract?

An insurance contract is an agreement between the policyholder and the insurer to establish, change or terminate the legal relationship of insurance. In accordance with the insurance contract, the insured shall bear the obligation to pay the premium to the insurer, and the insurer shall bear the obligation to provide protection against the risks that may be suffered by the subject of the insurance. After an insurance accident occurs, the insurer pays the insured or beneficiary insurance in accordance with the scope agreed in the contract, or pays the insurance premium to the insured or beneficiary at the expiration of the contract term.

What is Insurance liability?

Insurance liability refers to the liability of the insurer for the economic compensation and payment of insurance benefits for the insured under the agreed insurance accident as stipulated in the insurance contract. Insurance liability can generally be divided into basic liability, exclusion liability and special liability.

Basic responsibilities

The insurance risk range for which the insurer is liable for economic damage stipulated in the insurance contract usually covers the losses caused by natural disasters, accidents, rescues or measures necessary to prevent the spread of disasters, as well as reasonable expenses such as rescue, protection and sorting when the insurance risk occurs.

Exclusions

The insurer specified in the insurance contract will not bear the risk loss of claim liability. There are three main parts to the exclusions listed in the insurance contract. First, it is explicitly included in the exclusion clause, such as war, military action, acts of violence, nuclear radiation and pollution, etc.;

Special responsibilities

In addition to the basic liability specified in the insurance contract, or as an exclusion of the risk loss, after the consent of the two parties to the insurance contract specially additional underwriting of a liability, is agreed to expand the insurance liability, so also known as “additional liability” or “additional insurance”. It is attached to basic liability as a supplement to basic insurance, such as additional theft insurance for corporate property insurance, or it exists independently and can be covered separately, such as motor vehicle third party liability insurance.

Conclusion

There are a variety of insurance plans in the market that provide convenience, such as coverage, expenses, and long-term wealth accumulation – all of which can help you get financial security if you can afford it. You can choose the right insurance considering you life stage or life plan for a variety of risks.

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