Tuesday, December 14, 2010

What is Insurance?

Life is full of Risks - some are preventable or can at least be minimized, some are avoidable and some are completely unforeseeable, therefore every house hold or business needs Insurance to protect assets against unforeseen events that could cause financial hardship. Sometimes Insurance is also needed to satisfy a Contractual Obligation (homeowner's commitment to purchase insurance on home to protect the mortgage company's investment in case the home is destroyed or damaged).

Insured: A person, a business or an organization whose property, life or legal liability is covered by an Insurance Policy.(Named Insured or Additional Named Insured on the policy) 

Insurer: An Insurance company.

Loss Exposure: Any condition or situation that presents the possibility of loss.

Insurance is four things:
1.      A Risk Management Technique that enables a person or an organization to deal with loss exposures and their financial consequences.
2.      A Transfer System in which one party-the Insured transfers the chance of financial loss to another party-the Insurer.
3.      A Business which includes various operations that must be conducted in a way that generates sufficient revenue to pay claims and provide a reasonable profit for its owners.
4.      A Contract between the Insured and Insurer that states what potential costs of loss the insured is transferring to the Insurer and expresses the insurer’s promise to pay for those costs of loss in exchange for a stated payment by the insured.



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