Tag Archives: Insurance Company

Insurance Concepts

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So we’ve all heard about the huge health insurance debate that has raged in this country for many years now. Parties on either side of the aisle have presented their case in hopes to sway the voters over to their point of view. While these are important issues, it is way beyond the scope of this article. In this article, I’ll go over the very basics of insurance, it’s principles and terminology. That way, when you hear news reports and such, you’ll be better informed.

Insurance has been around for many centuries. What is probably the most famous is a company you may have heard of, Lloyds of London. They started back when explorers would set out to the world. If they came back, then the people at Lloyds would reap some of the benefits. If they disappeared, then Lloyds would incur their cost. Companies and kings alike used Lloyds to protect against potential loss as they sent their ships out in search of new lands.

Insurance companies today operate based on the same principles.

To protect against loss due to unforeseen events in the future. It’s based on something from mathematics called the “Law of Large Numbers.” If there are thousands of people each paying a small amount of money every month, the insurance company can afford to pay individuals in case of an accident or other event. This only works if the chances of any given event is less than the total amount of contributions by all individuals.

In order to create a new policy, the insurance company has to evaluate the potential risks involved. If the risks are low enough, and they think they can afford to pay out in case of an accident or event, then they will initiate coverage. If, on the other hand, the risk is deemed to be too great, like car insurance for somebody who has been in twenty accidents, they will not be able to offer coverage.

To stay in business, the insurance company has to make sure that any risk of any event happening is smaller than the total amount of people participating in the plan.

If the risks start to get too large, then the company will have to do one of two things.

First off is to start charging everybody more for their insurance. The second thing is to simply deny coverage for certain events, or to certain individuals who are higher risk than others.

The bottom line is that the less likely something is going to happen, the less you’ll have to pay to insure against it. The higher the chance become, the more you’ll have to pay.

Insurance – Basics

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Insurance is a promise of compensation for specific potential future loss in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.

We all know about insurance but many times we ignore some basic features of insurance policy.

Here we will try to explain some of the words which your agent normally use while explaining any insurance policy.

By explaining the below terms we want to make you familiar with your insurance policy.

Sum assured (also known as Cover) – This refers to the amount paid out on a policy if you die within the Term of insurance plan. In case of an endowment policy Sum Assured can be paid out on maturity along with the bonus and in case of Money back policies a part of Sum Assured is paid out on regular intervals and on maturity along with the bonus.on regular intervals.

Endowment policy It is the guaranteed amount to be paid out at maturity with or without Bonus (Depend upon the policy).

Premium – The owner usually pays a fixed premium amount in exchange for the insurance company’s guarantee to cover any economic losses incurred under the scope of the agreement of insurance.

Bonus – It is the amount added to the basic sum assured under a with-profit life insurance policy.
Surrender value – The amount payable by the insurer to the owner of an investment-based plan in case he opts to terminate the policy after three years (the mandatory lock-in period) but before its maturity date. The surrender value will be the premium paid till date minus surrender charges and any outstanding loans due.

Endowment Policy – In this plan the amount is paid to a policyholder if he lives survives the term even after the tenure of the insurance contract or to the beneficiary if the insured person dies before the date on which the policy matures.

Term Insurance – Term life insurance is a life insurance plan in which person can get the huge insurance coverage with fewer lower premium.

In this plan beneficiary will get the cover amount only if the insured person dies within the policy term. Unlike Endowment policy policyholder don’t get any amount if insured person lives even after the policy expires. One should have atleast one Term Insurance policy. One can consult a financial planner for the best possible insurance solution.

Whole Life Insurance – A life insurance policy where benefits are payable to a beneficiary on death of the insured, whenever that occurs. The premium payment can happen for a specified number of years or throughout life.

ULIP – It is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. Some part of the amount invested in ULIP is used to provide the insurance cover and the remaining is invested in equity and debt investments and denoted as units.
Money Back Plan – A plan in which part of the sum assured is paid back to the policyholder at regular intervals and a part of sum assured is paid at maturity along with bonuses.

Rider – An add-on benefit available at the option of the policyholders that may alter certain features of a policy by increasing or restricting benefits.

Survival benefits – The amount payable to a policyholder under an investment-based plan if he survives the policy term. Typically, it is the sum assured plus returns (guaranteed additions / bonus) accrued.

Liability Insurance

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There are so many accidents people can have with their cars in daily life, in these cases liability insurance is beneficial to the user. In comparation between liability insurance and car insurance, liability insurance is compulsory giving more complete services than car insurance. In those cases, the insurance company would cover a percentage of the damages done to the person. The compensation for damages done to property is less significant.  There are some services offered: travel assistance, legal support and driver’s insurance.

 

In Spain driving insurance is compulsory and required by law. This has been done to avoid further problems when car accidents happen. For instance, liability insurance would cover a third party in case of an accident. Auto Insurance is highly important because even if the responsible for the accident claims bankruptcy, the third party involved will be compensated by the insurance company.

 

Auto insurance covers the driver of the vehicle from the damages that may be caused to third party drivers and their property.

This type of insurance covers the liability of the driver and the vehicle owner. This means that any person who drives will be covered even if it someone else is driving the vehicle. But if the driver is younger than 25 years and has a driver’s license that expired two years ago the insurance company may reduce the compensation if an incident occurs.

 

Some countries, like Spain, require liability insurance by law. This means that in order to drive your car you need to have it. This insurance guarantees that the insured will pay, through the insurance company, for the damage done to a third party.

 

Advantages: the insurance company pays for property and personal damage with the compensation limits set by law.

 

Nevertheless, liability insurance does not cover what happens to the car of the insured in the accident.

 

Who buys only Auto insurance? Those who have an impeccable driving record and are convinced they have little chance of an accident. Generally, they look for insurance that is not very expensive and that covers third parties in case of accident. If you buy a new vehicle, this insurance will not be enough because liability insurance does not give protection for the damages caused to your own car.

 

Liability insurance will not give coverage if the insured was involved in an accident while under the influence of alcohol or drugs or if the car was stolen.