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Sunday 11 December 2016

Insurance : Introduction

Insurance is a means of risk management to hedge against any uncertain loss. Insurance company protects the insured from a loss in exchange for monetary compensation known as the premium. The loss may or may not be financial.

The insured and insurer comes under a contract, called the insurance policy, which details the terms and conditions under which the insured will be financially compensated. For this Insurance company charges an amount of money to the insured for the coverage set forth in the insurance policy is called the premium. There different types of insurance policy depending on the risk they mitigate. These include life, health, motor, travel, home, commercial and business insurance.

Insurance is not a modern day concept. The Babylonians developed a system. According to Code of Hammurabi, Mediterranean sailing merchants were used this system for risk mitigation. Traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely. In consideration for bearing this risk, the lender calculated interest on the loan at an exceptionally high rate.

In modern days insurance is one of the most effective tools of social security across the globe. Here people from different background come in group and contribute a small amount as premium to create a fund. This fund is used to hedge against any uncertain loss incurred to a person in the group. Insurance had become accepted practice. Farmers wanted crop insurance. Travelers wanted travel insurance.  Everybody turned to insurers to buy peace of mind.

Most common types of insurance:
  • Life Insurance - Pays out a specified figure to the insured or specified beneficiaries on a specific event such as death of the insured.
  • Personal Accident Insurance - This will compensate you if at any single time an external violent event causes you disability, injury or death.
  • Medical and Health Insurance - to insure you from cost of medication, hospitalization, surgery and loss of pay due to medical condition.
  • Vehicle Insurance - this insurance covers it against accident or theft.
  • Home Insurance - to insure your home against loss or damage as a result of fire, electricity fault, plumping malfunction, flood, etc.
  • Travel Insurance – to insure any loss, damage, injury, sickness or inconvenience that comes up as a result. It may cover personal accidents, hijackings, travel delays and more.
  • Crop Insurance -the cover protects you from losses associated with crop failure as a result of bad weather, infection or infestation.
  • Mortgage Insurance –  protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage..

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