Insurance For Beginners
10 mins read
8 days ago
Risks are something we are surrounded by as we partake in our daily activities. We are faced with the risk of financial loss, theft, property loss, and even the risk of death. These circumstances are often unanticipated and may result in devastating losses. In a bid to protect their interests and property, it isn't uncommon for people to consider seeking protection from an insurance company. As such, insurance offers a means to protect ourselves in a situation that a devastating event occurs.
What is insurance?
Terminologies on Insurance
There are specific terminologies you need to know to understand better what insurance entails. This knowledge would come in handy when selecting an insurance plan to protect you from losses. Some of these terminologies include:
- Insurance Policies
This is a legally binding document between the insurer and the insurance company that explicitly states the insurance agreement’s details between the parties, including the benefits, terms, and conditions. The legal document is referred to as an insurance policy. It states the conditions in which the insurance company would cover the losses for an event. It clearly outlines the specific event the individual is being insured against, such as car theft, health conditions expenses, property destruction, etc.
The insurance policy is set up to the needs of the insurer. For instance, a factory owner may set up an insurance policy covering an accident’s costs to a factory worker.
- Policy Limit
This is a specific amount the policyholder (insured) must pay out of their pocket before the insurer pays the compensation. It is often set as a deterrent to clients to reduce the amount of more minor or insignificant claims made. This is because policies that have higher deductibles reduce minor claims from policyholders. Deductibles may be set per policy or per claim depending on the type of policy or the insurer’s discretion.
This refers to a request by an insured individual to the insurer to provide compensation to cover a loss.
- Proposal form
This refers to a form or application completed by an individual seeking cover from an insurance company.
- Insurance Broker
This usually refers to a risk management specialist who offers individuals professional advice on the best insurance policies.
- Insurance Agent
This refers to an individual or organization that assists the insurer in soliciting and negotiating contracts.
Types of insurance
Several insurance products are available for individuals and companies, dependent on the risk they wish to be insured from. Generally, the types of insurance can be divided into two broad categories.
A. Life insurance products
The policyholder’s family is financially compensated in a situation that the policyholder dies during the term of the policy. The assured sum stipulated in the insurance policy is paid out as compensation to beneficiaries and can be used to cover debts, funeral provisions and ensure the financial stability of the dependents of the policyholder.
However, often life insurance is bypassed in preference for non-life insurance. This is because people tend to insure their valuable assets rather than ensure financial protection for their dependents. Life insurance is essential for breadwinners of families who have dependents solely dependent on their source of income.
B. Non-life products
A non-life insurance product provides the individual insured compensation for loss, destruction of valuable assets the individual has insured. Often it covers valuable assets like automobiles, property, and financial losses. Non-life insurance covers more than valuable material things but can also insure against domestic and industrial accidents. It generally covers all financial losses other than death.
Differences between Life Insurance and Non- Life Insurance (General Insurance)
Insurance companies offer several insurance products. Yet, often they fall into two distinct categories. Specific differences help identify which category an insurance product/policy belongs to. Some of these differences include:
- Nature of the policy
Life insurance may be considered an investment and not necessarily a contract of indemnity. That is, it is not a protection against a loss or any other financial burden. While Non-life insurance is considered an indemnity contract in that it covers the financial burden an insured may experience as a consequence of a loss.
- Policy Period
Life insurance policies are long-term and may even extend to the death of the insured, while non-life insurance policies are often short-term.
For a life insurance policy, claims can only be made after the policyholder’s death or after the policy’s maturity. While for non-life insurance policies, claims are made per loss suffered by the policyholder.
- Cost of policy
The policy cost is determined by the amount promised at maturity of the policy for a life insurance policy. While for a non-life insurance policy, the cost of the policy is determined by the value of the asset insured.
Types of Insurance products
Insurance is effective in risk management and helps protect what we consider essential: life, business, health, property, and several others. Insurance products people consider in securing their financial stability and growth include:
- Health insurance
Health insurance is there to protect you from the health uncertainties that may occur. Taking into account the increasing cost of healthcare and the rising number of diseases getting health insurance may be an impressive financial move. There are different insurance policies such as NHIS in Nigeria that protect not only the individual but also their dependents.
Health insurance is integral in protecting you in a situation of medical emergencies. It helps cover the medical cost for expensive treatment and covers a wide range of ailments and diseases. Yet, it is essential to consult with your insurance provider to ascertain what disease and ailment your health coverage covers and doesn’t.
- Automobile insurance
Automobile insurance is essential to protect your automobile (bike, car, trucks) against theft, destruction, and even automobile accidents. It ensures that the insured individual is protected from common road accidents, which is a smart choice given the recent increase in the number of road accidents. Automobile insurance is essential for every automobile owner as it helps compensate them in a situation of damage to their vehicles, even from natural calamities like tornadoes. It also provides compensation for when an accident occurs, in which the insured individual has to pay damages to other automobile owners.
- Accident and disability insurance
Accidents are unprecedented, which is why they are referred to as accidents in the first place. They can be disastrous and could put us in a state of financial insecurity. They can even severely affect our health and even threaten our lives. Accident and disability insurance cover the costs resulting from an accident and help offer financial stability in a situation of an accident. Manufacturing companies or industries which deal with life-threatening situations often consider this insurance to protect their employees from industrial accidents.
- Home insurance:
Our home is one of our valuable possessions, and its destruction might have us homeless and losing our precious memories. This explains why ensuring your home is essential. It helps to protect your home against losses and damages that may result from accidents (fire outbreaks) and natural calamities such as lightning, tornadoes, earthquakes, among several others. It is vital to protect your home, and securing insurance is an effective solution.
- Standalone critical illness insurance:
With cancer on the increase and the spread of new strains of diseases like Covid 19, it is understandable why people may feel the need to secure themselves against an occurrence of these events. Critical illness insurance is set up when a health insurance plan doesn’t cover specific illnesses. It is more prevalent among people who have a family history of critical illness and comes in handy in a situation that you or any member of your family experiences a chronic illness.
- Travel insurance:
- Education Insurance
This is not an exhaustive list of all insurance products and may even come under different names or categories. As such, it is best, depending on your needs to consult with an insurer to identify their specific policies in determining which offers the best coverage for your needs.
Why you should consider Insurance
Insurance is a risk management plan that offers individuals and businesses alike an avenue to safeguard their interests and properties. It offers several benefits, which include:
- Individuals and Organizations enjoy peace of mind.
Insurance provides cover and protection for individuals and businesses when they experience an event that can put them in a financial crisis. By protecting themselves from the uncertainties of life, they can experience a sense of security. With the assurance of security, they can enjoy peace of mind without being anxious, which allows them to focus on more equally essential things.
- It helps ensure financial stability.
A single medical emergency can take up years of saved funds. However, even though a similar event occurs, you can be assured of your financial stability with insurance. Insurance ensures that in a situation that an unexpected event occurs, you can be secure from a financial crisis. For instance, life insurance can come in handy upon the untimely death of a person. Although the funds do not equate to the loss of a dear one, yet it ensures that the family doesn’t undergo financial hardships because of such an event.
- It helps alleviates stress during events of loss.
A fire outbreak at your home or company can send you into a state of panic, with some people even suffering heart problems from this singular event creating another problem. Losses can leave you distraught mentally, physically, and emotionally. However, when you have adequate insurance, you do not have to worry about the funds at least but can focus on rebuilding something even better.
- Insurance makes it easier to access certain loans.
Insurance makes it easier to access certain loan facilities. This is because banks and microfinance are more open to offering loans to individuals with protected assets. In the event of a loss, the individual or organization finds it easier to find their footing. For instance home, business loans are easier to access when the home or business has insurance cover.
Many people may consider insurance an unnecessary expense because we feel we can handle uncertainties that may come our way. Yet, these circumstances often disrupt our financial stability setting us back from our financial goals. As such, insurance might just be a better alternative as it secures you against challenges that may occur as you attain financial growth.
Yet, it is essential to remember to compare policies from insurance companies to select the one that best protects your interests when selecting insurance coverage. When deciding the type of insurance, you should keep in mind the purpose of the cover, affordability, how long you might need the coverage, and the risk that you want to be covered. As such, you should not limit yourself to one insurance provider when selecting an insurance policy but conduct your research to get the best. Remember, the goal is to pay less for more coverage.
Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.
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