How Does Insurance Work?
The most basic principle behind the concept of insurance is 'risk pooling'. A large number of people are prepared to get insurance against any loss or loss, and for this they are willing to pay the desired premium. This group can be called insurance pool.
Now, the company knows that the number of interested people is huge and at the same time the potential for all of them needing insurance cover is almost impossible.
Thus, it collects companies at regular intervals and demands when such conditions occur. The most common example of this is auto insurance. We all have a car insurance, but how much do we claim it? So, you pay for the probability of loss and are insured and you will be paid in the event of a given event. So when you buy an insurance policy, you pay the company regular amount as a premium for the policy. If you decide to make a claim, the insurer will pay the damages covered by the policy. The companies use risk information to calculate the probability - you are seeking insurance for the event.
More than likely, the policy premium is higher. This process is called underwriting which is a risk assessment process. The company only looks for the actual value of the entity that is insured in exchange for an insurance contract between the insurers. For example, if you insured your ancestral home for 5 million, the company will only consider the true value of the home and will not entertain the emotional value that the home can hold for you, as it is impossible to pay the price on emotions. There are different terms for different policies, but the three most general principles remain the same for all types: the cover offered for a property or item is for real value and does not take into account any sentiment value. The benefits of a claim should be spread across policyholders so that insurers are able to calculate the probability of risk setting a premium for the policy. Damage does not have to be intentional.
We have covered the first two points above. The third part is a little more important to understand. An insurance policy is a special type of contract between the insured and the insured. This is a testament to 'absolute good faith'.
This means a vague but very important understanding between the insured and the insured, which is usually not present in the regular contract. This understanding involves the responsibility of full disclosure and not making any false or deliberate claim. If this duty of 'good faith' fails to notify you of the information you require, a company may refuse to settle your claim.
And this is a two way street. The company has a 'good faith' obligation to the client and failing to act on it can lead to many problems for the insurer.
The most basic principle behind the concept of insurance is 'risk pooling'. A large number of people are prepared to get insurance against any loss or loss, and for this they are willing to pay the desired premium. This group can be called insurance pool.
Now, the company knows that the number of interested people is huge and at the same time the potential for all of them needing insurance cover is almost impossible.
Thus, it collects companies at regular intervals and demands when such conditions occur. The most common example of this is auto insurance. We all have a car insurance, but how much do we claim it? So, you pay for the probability of loss and are insured and you will be paid in the event of a given event. So when you buy an insurance policy, you pay the company regular amount as a premium for the policy. If you decide to make a claim, the insurer will pay the damages covered by the policy. The companies use risk information to calculate the probability - you are seeking insurance for the event.
More than likely, the policy premium is higher. This process is called underwriting which is a risk assessment process. The company only looks for the actual value of the entity that is insured in exchange for an insurance contract between the insurers. For example, if you insured your ancestral home for 5 million, the company will only consider the true value of the home and will not entertain the emotional value that the home can hold for you, as it is impossible to pay the price on emotions. There are different terms for different policies, but the three most general principles remain the same for all types: the cover offered for a property or item is for real value and does not take into account any sentiment value. The benefits of a claim should be spread across policyholders so that insurers are able to calculate the probability of risk setting a premium for the policy. Damage does not have to be intentional.
We have covered the first two points above. The third part is a little more important to understand. An insurance policy is a special type of contract between the insured and the insured. This is a testament to 'absolute good faith'.
This means a vague but very important understanding between the insured and the insured, which is usually not present in the regular contract. This understanding involves the responsibility of full disclosure and not making any false or deliberate claim. If this duty of 'good faith' fails to notify you of the information you require, a company may refuse to settle your claim.
And this is a two way street. The company has a 'good faith' obligation to the client and failing to act on it can lead to many problems for the insurer.