Insurance: Benefits, Procedures, Kinds, Policies

What Is Insurance? 

Most people have some kind of insurance: for their car, their house, or even their life. Yet most of us don’t stop to think too much about what insurance is or how it works.

Put simply, insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

Kinds of insurance

1.Property insurance

Two main types of contracts—homeowner’s and commercial—have been developed to insure against loss from accidental destruction of property. These contracts (or forms) typically are divided into three or four parts: insuring agreements, identification of covered property, conditions and stipulations, and exclusions.

2.Homeowner’s insurance

Homeowner’s insurance covers individual, or nonbusiness, property. Introduced in 1958, it gradually replaced the older method of insuring individual property under the “standard fire policy.” In homeowner’s policies, of which there are several types, coverage can be “all risk” or “named peril.” All-risk policies offer insurance on any peril except those later excluded in the policy. The advantage of these contracts is that if property is destroyed by a peril not specifically excluded the insurance is good. In policies, no coverage is provided unless the property is damaged by a peril specifically listed in the contract.

In addition to protection against the loss from destruction of an owner’s property by perils such as fire, lightning, theft, explosion, and windstorm, homeowner’s policies typically insure against other types of risks faced by a homeowner such as legal liability to others for injuries, medical payments to others, and additional expenses incurred when the insured owner is required to vacate the premises after an insured peril occurs. Thus the homeowner’s policy is multi-peril in nature, covering a wide variety of risks formerly written under separate contracts.

Key Features of Insurance

Listed below are the key features of an insurance plan that you should consider: 

1. Insurance is a tool for risk transfer.
2. Insurance is a community solution as several people, who are exposed to the same risk, pool their funds together to bear the loss.
3. The contract is based on the ‘utmost good faith’ principle unlike other business contracts.
4. Insurance cover does not affect the chance of loss or minimise the magnitude of loss.
5. As a party to the insurance contract, you should always try to avoid, mitigate and minimize the losses.
6. You can only insure against risks which are unpredictable in occurrence and magnitude.
7. Speculative, financial (betting) and business risks cannot be insured.