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How does insurance work ?
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[QUOTE="Mertayasa, post: 124819, member: 42213"] [JUSTIFY]Insurance provides individuals and companies with protection against major financial losses due to property damage or loss. In exchange for premium payments made, individuals and companies are guaranteed compensation or reimbursement under the terms stated in the insurance policy. Insurance has become a part of modern society's life. Life insurance and auto insurance are the two most common forms of insurance. Health insurance and workers' compensation are also other common types of insurance. While insurance has become a part of most people's lives, not everyone understands how it works. [B]How does insurance work?[/B] There are always risks in life such as fire, theft or an earthquake. Many people hope to avoid financial loss by getting compensation for lost or damaged personal property. Insurance is a way to protect personal finances from undue burden. Insurance is a form of risk management in which risk is transferred to an insurance company in exchange for premium payments. When buying insurance, one gets an insurance policy which is a legally binding contract. This policy explains in detail all the rights, responsibilities and obligations of the insured (customer) and the insurance company. When a person suffers a loss covered by the policy, he or she can file a claim. A claim is a complete report of what was lost or damaged and its value. The amount of money to be reimbursed (sum insured) is based on the amount contained in the policy. When an individual or company buys an insurance policy, all the money from the premiums is then combined into what is called an insurance pool. Insurance companies use statistics to predict what percentage of an insured person or business will actually suffer a loss and file a claim. Statistics also help determine the amount of the premium. Other factors such as credit score and previous claims are also taken into account. Because most insured people have no or only minor losses, insurance companies gain an advantage that allows them to continue operating and pay large claims occasionally.[/JUSTIFY] [/QUOTE]
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