Insurance is a financial product designed to protect individuals, businesses, or entities from financial loss due to unforeseen events or risks. It operates on the principle of risk-sharing, where policyholders pay premiums to an insurer in exchange for coverage against specified risks.
Risk Coverage:
- Insurance provides financial protection against specific risks, such as accidents, theft, natural disasters, illness, or death.
Premium:
- Policyholders pay a fixed amount (premium) periodically to the insurer, which serves as the cost of coverage.
Policy Agreement:
- A legal contract between the insurer and the insured outlines the terms, conditions, coverage, and exclusions.
Indemnity:
- Insurance aims to restore the insured to the financial position they were in before the loss occurred (except in life insurance, which provides a lump sum).
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Pooling of Risk:
- Insurance companies collect premiums from a large number of policyholders, distributing the financial impact of losses among them.
Claim Process:
- In case of an insured event, the policyholder files a claim, and the insurer evaluates it before providing compensation.
Types of Coverage:
- Insurance can cover various areas, including:
- Life Insurance (financial support to beneficiaries after the policyholder’s death)
- Health Insurance (medical expenses)
- Auto Insurance (vehicle-related damages and liabilities)
- Property Insurance (damage to property or assets)
- Liability Insurance (legal liabilities for harm caused to others)
- Insurance can cover various areas, including:
Exclusions:
- Policies specify conditions or events not covered, like intentional damage or acts of war.
Contract Duration:
- Coverage is provided for a specific period, after which the policy needs renewal.
Regulated by Law:
- Insurance is regulated to ensure fair practices, solvency of insurers, and protection of policyholders’ interests.