What is Insurance and How it Works?
Insurance is a contract, represented by a policy, under which an individual or entity receives financial protection or compensation from the insurance company. The company collects client risks to make payments more affordable for the insured.
Insurance policies are used to hedge against the risk of financial loss, both large and small, which may result from damage to the insured person or his property, or from liability for damage or injury caused to a third party.
How Insurance Works
There are many types of insurance policies available, and almost any individual or business can find an insurance company that is willing to insure them - for a price. The most common types of personal insurance policies are car, health, home and life insurance. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.
Businesses need special types of insurance policies that cover certain types of risk faced by certain businesses. For example, fast food restaurants need a policy that covers damage or injury incurred as a result of cooking in a frying pan. Auto dealers are not subject to this type of risk but require protection for damage or injury that can occur during a test drive.
In order to choose the best policy for you or your family, it is important to pay attention to three important components of most insurance policies - reduction, premium, and policy limit.
There are also insurance policies available for very specific needs, such as kidnapping and ransom (K&R), medical malpractice, and professional liability insurance, which is also known as guilt and negligence insurance.
And that's our article about what insurance is. And is insurance important for your life? Read our next article to find out the importance of insurance for our security.
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