A Beginner’s Guide to Understanding Insurance

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Currently, almost every thing needs to be covered with an insurance. In other instances, insurance cover is mandatory. This includes, health insurance, car insurance, and fire insurance. In this manner, you need to understand on the basics of insurance.

Before you opt for any insurance cover, you have to determine the true meaning of insurance policy. Insurance essentially means protection from certain risks. For instance, fire constitute an unpredictable risk that has the ability to destroy your property. To prevent this, you have to opt for a fire insurance cover. In case the event happens, the insurance cover will restore everything in place.

Common Terms used in insurance.

For beginners, terms used in insurance tend to appear incredibly complex. Some individuals tend to expend resources on law firms for coherent explanation. However, this article aims at enumerating the major terms used by insurance companies in an elaborate way.

  • Insurance premium – refers to the agreed a payable amount to the insurance company. The amount is paid in installment with regards to the type of insurance and insurer.
  • Third party – refers to any other person affected by the risk. For instance, in case of a car accident, the first party is the insured. The second party is your insurance company, and third party is your car or a passenger. In most cases, third-party insurance is mandatory when you are taking car insurance cover.
  • Insurance agent and broker – an insurance agent is a person that sells insurance on behalf of the insurance firm. Conversely, and insurance broker is a registered profession that acts as an adviser to customers opting for insurance cover. The insurance company pays agents and brokers a fee known as commission.
  • Sum insured – this is a calculation of the total value of goods insured. This determines the insurance premium.

How to purchase an Insurance policy

You can either purchase an insurance policy directly from the insurance company or from an authorised broker and agent. If you choose purchasing the policy from an agent or broker, you must assess their qualifications and certificates.

Applying for insurance is extremely straightforward. You will fill a proposal form and submit to the insurer. Once the form is verified, you are required to pay the initial premium. Subsequently, the insurance company will provide you with an insurance policy document.

Types of Insurance

I’m absolutely certain that you’ve heard about various types of insurance and what they protect from. However, there are two primary types of insurance cover. They include life and general insurance.

Life Insurance 

If your family depends on your income, they could financially suffer or come blunt of money in the event of death. This explains why you need to have life insurance. This type of insurance is perceived as a future saving plan. With these reasons, majority if individuals are opting for life insurance. Before you apply for life insurance cover, it is crucial to explore its basics.

This type of policy is distinct from general insurance. Unlike general insurance where your property is retained, life insurance invests beneficiaries a certain amount in the incident of loss of life by the insured.

Life insurance incorporates two types of covers; term insurance and whole life insurance cover. With term insurance, your beneficiaries receive secure income in the event of death. Whole life insurance is usually referred as an investment or future financial plan. Your beneficiaries are paid in full at once when you die. For safety purposes, term insurance is the most preferred.

With term insurance, you can either opt for a lever or decreasing cover. With lever cover, your beneficiaries are paid the same amount regardless of the time of death. Conversely, with decreasing cover, the amount paid to beneficiaries decreases with certain amount as your mortgage is paid by the insurer.

Life insurance also allows you a chance to pay increasing premiums. This means that in the event of death, the amount payable to your family will increase as the rate of inflation increases.

With term insurance policy, you will decide on how much your beneficiaries will get once you die. Some mortgage lenders require you to have a life insurance. This ensures that your mortgage is paid by the insurer.

Insurance offers the following products when it comes to life insurance; endowment, whole life, term, life annuity plan, and health insurance policies.

General Insurance 

General insurance covers losses and damages of finances and properties other than life insurance. To ascertain a comprehensive coverage, it is crucial to assess the critical losses to insure against unseen risk.

With most insurers, the insurance policy and general plan goes for one year. Thus, premiums are paid yearly or half-year depending on the insurer.

General insurance entails a number of risks. This means that you have to take a cover for each risk. This means that you cannot use burglary insurance cover against a fire risk.

Common risks covered include:

  • Accident or injury
  • Property loss
  • Property destruction such as fire or water
  • Third party risks
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Kevin Schultz is a professional journalist with over 15 years of writing and media experience. He is a full-time contributor to the Themocracy Online News Blog and his insightful writing has been enjoyed by thousands.