Insurance is a way of protecting financial loss, it prevents the risk of uncertain loss. It is a principle where the insurer(an entity which provides insurance) restores the insured/policyholder(one who buys insurances) to the approximate financial state before the loss occurred, no better, no worse. The money which the policyholders use to buy insurance is called " Premium". Read Other insurance terminology
The Insured gets a contract(insurance policy) which states the condition and circumstance under which the insurer will compensate the insured.
Insurance is basically a risk management, when the insured experiences loss he/she submits a claim to the insurer for processing by claim adjuster.
Effect of Insurance in Our Society
- It helps the community by sharing or transferring risk, insurance companies also invest the premium into economy which helps flow of capital
- Individual uses it to prevent falling into financial trouble when uncertain loss or damage occur resulting from a particular event, which gives peace of mind.
- In as much as it helps it also increases fraud in the society which may be referred to loss due to intentional or carelessness this is why you need a very reliable insurance company.
- It also causes moral hazard in which the party at risk will act differently from the way he/she ought to behave if fully exposed to risk
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