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Insurance is an essential part of modern life. It is a mechanism by which individuals and organizations can transfer the financial risk of loss to an insurance company. Insurance policies are contracts between the policyholder and the insurer, in which the insurer agrees to pay a specified amount of money to the policyholder in the event of a covered loss. In this blog post, we will discuss the basics of insurance, including important terms, definitions, and concepts you need to know.
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Policyholder: The person or entity that purchases the insurance policy.
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Insurer: The insurance company that provides coverage to the policyholder.
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Premium: The amount of money that the policyholder pays to the insurer for coverage.
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Deductible: The amount of money that the policyholder must pay out of pocket before the insurer will pay for any covered losses.
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Coverage: The amount of protection provided by the insurance policy.
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Claim: A request for payment made by the policyholder to the insurer.
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Liability: The legal responsibility for damages or injuries caused to another person or their property.
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Underwriting: The process by which an insurer evaluates the risk of providing coverage to a potential policyholder.
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Risk: The possibility of loss or damage.
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Actuary: A professional who uses statistical analysis to assess and manage risk for insurance companies.
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Premiums vs Claims: Insurance premiums are the amount of money paid by policyholders for insurance coverage, while claims are the amount of money paid out by insurers for covered losses.
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Policy Limits: The maximum amount of coverage provided by an insurance policy.
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Exclusions: Situations or events that are not covered by an insurance policy.
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Endorsement: A change to an insurance policy that modifies its terms and conditions.
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Indemnity: Compensation for losses or damages.
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Reinsurance: Insurance purchased by insurers to protect against large or catastrophic losses.
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Perils: The specific events or causes of loss covered by an insurance policy.
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Loss Ratio: The ratio of claims paid by an insurer to the premiums collected from policyholders.
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Subrogation: The process by which an insurer seeks reimbursement from a third party for losses paid to the policyholder.
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Insurance Agent: A licensed professional who sells insurance policies and provides advice to clients.
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Understand insurance basics before buying coverage for personal or business purposes. Review policy carefully and seek advice from agent/attorney to ensure coverage and understand obligations.
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Auto insurance covers damages or injuries from accidents. Liability coverage protects against legal responsibility for other's damages. Policies also cover medical expenses, collision, and comprehensive damages.
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Homeowner's insurance provides coverage for damages or losses to a person's home and personal property, including fire, theft, and natural disasters.