What is insurance? types and advantages

What is an insurance?

Insurance is a legal agreement between insurer and insured whereby insurer promises to compensate insured's financial loss in return of premiums. 

An insurer is a company that sell insurance and is liable to compensate an insured's financial loss. An insured is a person or an entity that is covered by insurance. In order for an insured to be covered, he has to pay premiums to an insurer. Premiums are the insurance fees which can be paid monthly or yearly, depending on an insurance provider.

How does it work?

An insured has  to pay the premiums to an insurer. Once the insured experience financial loss, he has to file the claim. An insurer will send an adjuster to calculate the loss. After the claim to be verified insured will receive the sum assured from an insurer.

Types of insurance

There are two major types of insurance, which are life insurance and general insurance.

Life insurance

This is the type of an insurance that covers life. In life insurance, an insurer pays insured's beneficiaries the death benefit when an insured dies. Life insurance is categorized into two main types which are, term life insurance and permanent life insurance.

Term life insurance is the type of life insurance that provide coverage for a certain period of time, usually from 5 to 30 years. Term life is divided into several types like, level term, increasing term, decreasing term, renewable term, annual renewable term and group term.

Permanent life insurance is the type of insurance that covers almost the entire life of an insured. It is expensive compared to term life. Permanent life is divided into several types like, whole life, universal life and indexed universal life.

General insurance

It comprises all types of insurance other than life insurance. Example, health insurance, auto insurance and home insurance.

Advantages of insurance

1. Bring peace of mind; an insurance guarantees you compensation of your financial loss. Thus, you won't worry about risks that may cause damage of your properties or financial loss.
2. Provide financial security; Insurance secures you from financial loss by guaranteeing you compensation when you experience it.
3. Source of employment; Actuaries and insurance adjusters are the example of professional people hired in insurance sector. Thus, it is a source of employment within our societies.

Conclusion; Buying an insurance is like to deal with risks before they come. Risks are unexpected, they come at any time and may affect your budget. Insurance can help to compensate your loss that caused by risks.