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Insurance Policies, Premium & Limits | Everything You Need To Know

Insurance Policies, Premium & Limits | Everything You Need To Know

Insurance Policies, Premium & Limits | Everything You Need To Know

What Is Insurance?

By way of definition, insurance is an agreement, characterized by policies, which an individual or entity or firm receives financial protection or compensation against losses from an insurance company.

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to guard against the risk of a unforeseen or uncertain loss.

The company pools clients’ risks to make payments more affordable for the insured.

There’s always a risk attached to most of the things we do in our daily lives – a risk that something may go skewed. As far as risk goes, most people, entity or firm view insurance as their first line of defense.

Insurance is an appropriate risk prevention tool.

An entity which provides insurance is known as an insurer insurance company, insurance carrier, or underwriter. The person, entity or firm who buys insurance is known as an insured or as a policyholder.

Insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss. The loss may be financial or otherwise, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.

What Is Insurance Policy?

The policy holder receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured.

When choosing a policy, it is important to understand how insurance works. Three important components of insurance policies are the premium, policy limit, and deductible. A firms’ understanding of these concepts goes a long way in helping you choose the policy that best suits your needs.

What is Premium?

Premium is the amount of money charged by the insurer to the policy holder for the coverage set forth in the insurance.

A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness.

For example, if you own a fleet of classy automobiles and have a record of reckless driving, you are likely to pay more for an auto policy than someone with a mid-range car and a perfect driving record. However, different insurers may charge different premiums for similar policies; so, finding the price that is right for you requires some groundwork.

If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.

What is Policy Limit?

Otherwise referred to as insurance limit, the policy limit is the maximum benefit an insurance company will pay a policyholder if/when an insured event occurs. Or in clearer terms – it is the maximum amount of money an insurance company will pay you for a covered loss. You’ll typically find that the higher your coverage limit, the higher your premium may be.

What is Insurance Deductible?

The amount of money you will pay in an insurance claim before the insurance coverage starts paying you is called the insurance deductible.

The amount is paid out of the policy holder’s pocket before an insurance provider will pay any expenses.

It is your portion of the financial responsibility and forms part of your insurance contract.

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Often, we hear about various types of insurance policies without really understanding what they are and more importantly, what they protect. The truth is, there are two main types of insurance, namely life insurance and general insurance which covers different aspects in your life.

What is Life Insurance?

Life insurance is an insurance coverage that pays out a certain amount of money to the insured or their specified beneficiaries upon a certain event such as death of the individual who is insured.

Usually, the period of coverage for life insurance is usually more than a year. This means that periodic premium payments, either monthly, quarterly or annually is required.

The risks that are covered by life insurance are:

  • Premature death
  • Income during retirement
  • Illness

The main products of life insurance include:

  • Whole life
  • Endowment
  • Term
  • Investment-linked
  • Life annuity plan
  • Medical and health

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What Is General Insurance?

General insurance is an insurance coverage that protects you against losses and damages other than those covered by life insurance.

Usually, the period of coverage for general insurance is usually more than a year. This means premiums are normally paid on a one-time basis

The risks that are covered by general insurance are:

  • Property loss, for example, stolen car or burnt house
  • Liability arising from damage caused by yourself to a third party
  • Accidental death or injury

The main products of general insurance includes:

  • Motor Insurance
  • Fire/ Houseowners/ Householders Insurance
  • Personal accident Insurance
  • Travel Insurance
  • Gap Insurance
  • Income protection Insurance
  • Casualty Insurance
  • Life Insurance
  • Burial Insurance
  • Liability Insurance
  • Credit Insurance

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