What is Insurance and why Must we Acquire Insurance Cover?

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Insurance is a form of risk management that involves equitable transfer of the risk of loss from one entity to another in exchange for payment. The insurer is the company selling the insurance while the insured is the person or the entity acquiring the insurance policy. The amount of money charged for an insurance coverage is referred to as the premium.

Principles of Insurance

Insurance involves pooling of funds from the insured entities so as to pay losses that one of the insured may incur. For an entity to be insured, it must have an insurable interest. Just like other contracts, the insurance contract should be based on utmost good faith and not obtained by way of fraud. The insurance contract must also heed to the principle of indemnity. This means that in the case of a loss, the insured should be compensated in such a way that he neither benefits nor worsens off after the compensation. There should also be a proximate cause which means that the cause of the loss which has occurred should be closely related to the insured risk. For Life insurance the proximate cause does not apply. In case a property has been insured by more than one company, the insured should not be paid by the two insurers; instead, they should come together and compensate the insured. This is because a person is not supposed to be lifted to a better position than he was before the loss occurred.

Why It’s Important to be Covered

Removal of uncertainties

By insuring your property, you transfer the risk of large but uncertain losses for a small premium. This will give you a sense of security for your property. In businesses, large properties are employed which can turn to ashes because of occurrence of a risk. But with an insurance coverage, you will be safe due to compensation once there is occurrence of a hazard. For personal illness or accidents, an insurance financial protection is given in case the bill is too high and the individual is unable to pay.

Provides peace of mind

Once you acquire an insurance coverage, this removes fears, anxiety and tensions. Providing financial help and promised compensation due to occurrence of various risks gives peace of mind. This also stimulates better working performance of the individual.

It encourages Savings

Once you are insured, you have an obligation of paying premium regularly and cannot easily withdraw from insurance before the expiry period is over. This can be a form of investment as the annual premium paid will be directed towards the markets and some of the premium will provide a death cover.

Insurance provides credit facilities

Once you have an insurance cover, it is possible to get a loan by pledging insurance policy and the interest policy will not exceed the money value of the policy charged by the insurer. If the insured happens to die, the policy can still be utilized for setting off the loan with interest.

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