Insurance
Insurance is a policy or an agreement of getting financial protection or compensation for losses of an individual or business. The company joins clients' risks together to make coverage more accessible for the insured.
Damage can come to property or to the insured person himself or herself. The insured person can cause damage to a third party. All of this refers to losses. Insurance policies are protection against the risk of financial loss.
How Insurance works
Insurance companies offer policies in a variety of directions (auto insurance, homeowners’ insurance, health insurance, life insurance, etc.), allowing people or companies to choose what they need. Different companies are ready to deal with different cases for a certain price. Auto insurance in the USA is obligatory by law, and most people in the U.S. try to purchase at least one of these insurance policies. It is important for companies to have insurance policies related to the risks of their spheres of activity. A car dealer faces damage and injury during a test drive. A cafe or restaurant faces damage or injury while cooking.
Some insurance organizations offer highly specialized policies such as kidnap and ransom (K&R), medical malpractice, and errors and omissions insurance (professional liability insurance).
Components of an Insurance policy
You need to know how insurance works before choosing an insurance policy. You need to pay attention to three crucial important components of any type of insurance: the premium, the policy limit, and the deductible.
Premium. Policy price is the premium. It is usually paid every month. It is calculated by the insurance company based on your personal or business risk profile (including creditworthiness).
Let's look at a car insurance policy as an example. If you have a long, no-accident driving history and one average sedan, the policy price will be lower for you than for someone with an extreme driving style and a large, expensive auto fleet. Different insurance companies may ask different premiums for policies with the same conditions. It will take some time to find a price that is acceptable to you, and you'll have to search.
Policy Limit. Insurance companies limit the maximum paying amount under a policy to cover a loss. The maximum amounts are set per injury, per loss, per period (year, policy validity period), for life maximum. The higher the policy limit, the higher the premium. A general life insurance policy pays a face value after the insured person's death. This amount is paid to the beneficiary.
Deductibles help to avoid small and insignificant claims and lawsuits. Before paying the claim by the insurance company, the insured person has to pay the deductible out of his or her own money. Deductible payment terms are different among insurance companies, policy types, or per claim in the policy. The higher the deductible, the cheaper the insurance policy.
Important note: Regular medical care for people with chronic illnesses will be more reliable under a health insurance policy with a lower deductible. The annual premium for such a policy is higher, but access to health care during the year is less expensive.
