When it comes to protection in any aspect of life, the word INSURANCE is the first word to be thought of. It is a financial product being sold by numerous insurance companies to safeguard you and / or your property counter to the risk of loss, incident or theft (such as flooding, burglary accidents).
With some particular types of insurance, such as MOTOR INSURANCE, you have to take out by law if you drive a vehicle; some other may need your mortgage as a condition of a contract for a BUILDING INSURANCE, and the other types likes LIFE INSURANCE or saving for your retired pension are sensible to take out.
While it is a common yet clever idea to make sure you are not paying for insurance that you need, you should always think about what would happen if incidents struck and you didn’t have any cover to protect you.
You can obtain insurance policies for many aspects of your life, for instance for your health, home or buliding, car, business, or retirement.
An insurance policy is a contract that you take out with an insurer to protect you from specific risks under specifically agreed terms.
How it works
When you obtain a policy, you make regular payments, called premiums, to the insurer. If you make a claim, your insurer will pay for the loss that is covered under the policy, but if you don’t make a claim, you won’t get your regular payments money back; on the other hand, it is pooled with the premiums of other policyholders who have taken out insurance with the same insurance company. If you make a allegation the allocation comes from the pool of policyholders premiums.
To decide on the type of insurance, you really have to think just about:
- why you need cover
- what you want to include in your cover
- how much you can afford
- how long you might need cover for
- whether you want cover for yourself and / or for loved ones
To buy insurance cover you can:
- contact an insurer directly, either online or over the phone
- seek professional advice through an insurance broker via the British Insurance Brokers' Association (BIBA)
- speak to an independent financial adviser through the Association of Professional Financial Advisors and / or unbiased.co.uk, a comprehensive website where you can find specialist, professional financial advisers
- check comparison websites to get the best deal on the type of policy you're looking for
How premiums are calculated
Insurance companies uses risk data to calculate the likelihood of the event you are insuring against the disasters. This information is used to conflict out the cost of your premium. The more likely the event you are insuring against is to occur, the greater the risk to the insurer and, as a result, the higher the cost of your premium.
An insurer will count on two important factors into account when calculating the premium they will charge. Only a proportion of policyholders will call for a claim in any one year.
- How likely is it in general terms that someone will need to call for a claim?
- Is the person who wants to take out a policy a greater or lesser risk than the average policyholder (for example, a teenage with a high-powered car may be charged a higher premium as they are statistically more likely to be involved in an traffic accident than a mature, experienced driver)?
Though policies have its individual terms and conditions, in general, there are 3 main principles that are in common across every part of insurance policies. These include:
- cover is provided for the actual value of the property or item that has been loose or damaged (its replacement value), but does not add together any passionate value
- there needs to be a large number of same risks as a upshot that the likelihood of a claim can be enlarge on in the midst of added policyholders. It must be viable for insurers to calculate the unplanned of loss thus that a premium can be set which matches the risk
- losses must not be deliberate
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