Insurance is a way of protection against financial loss. In most cases, it’s a type of risk management, mainly utilized to mitigate the risk of an uncertain or unforeseeable future event. For instance, consider a car insurance policy. If your car is stolen and you don’t have any money for to repair it, you don’t have the option to go to a mechanic and get it back. However, if you had adequate insurance coverage on your car in the first place, you might be able to at least fix it up and get back on the road.
Insurance works basically as an agreement between the insured and the insurer to compensate for financial losses when some kind of an undesirable event occurs. An example of this would be a person getting hit by a car. The insurer will pay for medical expenses and the damages to the vehicle, while the insured pays towards the cost of the vehicle insurance. Insurance comes in many forms, including automobile insurance, health insurance, and life insurance, to name a few.
Insurance provides both financial and protective cover. Some types of insurance include property insurance, casualty insurance, disability insurance, and health insurance. Insurance policies can be either compulsory or voluntary. For compulsory insurance policies, such as life and health insurance, the insurer requires the customer to purchase these policies. Examples of such policies include sickness, accident, unemployment, dental, and maternity insurance policies.
Voluntary insurance policies are not tied to any legal requirements. However, these tend to be more expensive and cover only specific types of issues. For example, if an insured party were to kill themselves, their family, or pets, the person who has insured themselves under the policy would be entitled to a payout. An example of a voluntary policy would be a life insurance policy. Under such a policy, the insured pays a fixed premium that increases with the age of the insured.
On the other hand, mandatory insurance policies are legally required, and it is the price and premium that increase with the age of the insured. The premium charged is based on the insurer’s assessment of the expected risks. For example, in a divorce case, the insurer will take into consideration the possibility of alimony payments and child support payments. A person who buys a policy at a younger age, where they have no other dependents, may have to pay a higher premium, or may have to take out a policy that has a shorter term.
People often buy insurance policies for events that they believe will cause them a lot of trouble. For example, if someone is living in a rented accommodation and the house catches fire, the person may need to make use of personal liability insurance, in which the company that the insured has chosen to insure will pay any amount of money to the third party that was injured in the fire, provided that the sum assured is greater than the sum the company pays the insured. Alternatively, if the person is an alcoholic, they can insure against alcohol-related bodily injury and death, and will be responsible for any legal costs as a result of such an accident. The amount the insurer pays will depend on their risk assessment, and can increase with age and the number of years the person has been renting accommodation.