Primer on Insurance
20 December 2006Many of as avail an insurance because we are convinced by a neighbor or a friend. Due to some incident experienced by some of our friends and because they were insured, they share some of the valuable part where insurances really played a vital role. This is only one of the reasons why some of us avail insurance. But the core of insurance should be known to everybody, not coming from a friend or a neighbor, but coming from different side of point of view is also a good start.
INSURANCE is a method of protecting against future loss. Through insurance, the risk of such loss is transferred to an insurance company or other insuring organization. In many forms, it is used to handle a wide range of financial risks. Individuals and families, groups of employees, self-employed persons, and business firms both large and small buy insurance.
Why do people engage in the business of insurance and why do people buy insurance?
Businessman thinks that it is wise idea to invest their money in an insurance business. In a business oriented mind, they think that they can generate more income through the premiums paid by the insured. However, in a service oriented mind, they also think that they can help those who worry about their life, health and properties whether real or personal. At any rate, the two mentioned purpose can be achieved simultaneously in an insurance business.
How insurance business works?
Suppose 100 people buy 100 brand new cars. Thinking that at any time it could be stolen or destroyed in a collision, they decided to insure them for their protection. According to past statistics, an average of 1 out of 100 cars insured is stolen or destroyed each year. By charging for example $300 each of the 100 cars, the company will accumulate $30,000, that amount will be enough to pay for the expected $15,000 loss. The $15,000 is enough to cover the company’s operating expenses, including sales commissions, salaries, rent and other miscellaneous expenses for the operation of the business.
In actual operation, the owner of the car pays the premium indicated in the policy. In turn, the insurer pays the insured for the damage to his automobile resulting from car accidents. It also covers lawsuits arising from the said accident. Likewise, auto insurance can help pay the medical bills of those injured by the accidents. The same procedure is observed in health insurance. The policy holder pays the premium and in turn the insurer pays the insured the costs of his medical treatment in case of illness. The insurer also replace some of the income lost while the worker is disabled by accident or illness.
For more info: Email at walterdcvalerio@yahoo.com
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