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Insurance Equals Risk Management

Author : Dakota Lindal

Insurance is basically a form of risk management which will protect you in the case of unforeseen circumstances such as a car accident, a burglary or sudden death or disability.

The company selling the insurance is known as the insurer, the person buying the insurance policy is known as the insured and the amount that you are charged for your insurance policy is called the premium.

Insurance can be defined as the act of incurring small expenses (in the form of your premiums) in exchange for coverage from the insurance company in the form of compensation in the event of a loss by the insured.

Insurance companies use the premiums of many insured entities to pay for the losses that some may sustain. This can basically be explained as a group of friends each putting a small amount of money in a bucket each month. If one of the friends is involved in an emergency he/she will be able to take all the money to cover damages or injuries incurred. The "loss" in the form of the small monthly contribution is nothing compared to the relief when the bucket of money can be used. In the case of insurance companies the "friends" are hundred thousands of insured entities and the "bucket" is pooling funds from the various premiums in order to pay for claims received.

Any risk that can be measured can potentially be insured. The different types of insurance include the following: Car insurance, home insurance, health insurance, accident, sickness and unemployment insurance, casualty insurance, life insurance, property, liability and credit insurance.

For the basic reason that there are so many different types of insurance available, insurance companies are also classified into two types: Life insurance companies and non-life insurance companies. Life insurance companies will typically sell life insurance, annuities and pension products while non-life insurance companies will sell the other types of insurance. Non-life insurance companies are also known as general or property/casualty insurance companies.

If you have a safety net in place by means of an insurance policy, does that mean you can through all caution to the wind and live a reckless life? The risk is with the insurer and not with you, the insured, so why be cautious? Unfortunately for you, insurance companies have considered this approach too and have certain clauses to protect themselves when their client turns out to be high-risk clients. For example, people with a high risk job or how engage in extreme sports may have to pay higher life insurance people than other clients. Young drivers with high performance cars will pay higher car insurance premiums than an older person with a family car. The list goes on and on.

Insurance policies can be quite confusing. Do not hesitate to call in the assistance of a broker, or to arrange a meeting with one of the insurance company's agents. There are a lot of qualified professionals available to assist the main on the street with choosing the correct insurance policy.

Not everything in life can be prevented - make sure that you are adequately insured!

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Submitted : 2010-12-01    Word Count : 870    Times Viewed: 154