What is an insurance policy and how does it work?

What is an insurance policy and how does it work?
What is an insurance policy and how does it work?

An insurance policy is essentially a contract between you and your insurance company – it sets out what is covered and what is not, and other details of your agreement.  After you register and pay for your policy (cheers!), you will receive a personal insurance policy in your mailbox or, in some cases, in your Inbox.  Open it and you will see all the intricacies of your insurance contract.

  An insurance premium is the amount you need to pay to purchase a certain amount of insurance coverage.  This is usually expressed as a regular expense, whether monthly, quarterly, semi-annual or annual, that you incur during the premium period.

How does an insurance policy work?

  There are various factors on the basis of which the insurance company calculates the contribution under the insurance policy.  The idea is to check the suitability of the insured person for the specific type of insurance policy he / she wants to buy.

  For example, if you are healthy and do not have a history of serious illness, you are likely to pay less for health insurance or a life insurance policy than someone who suffers from multiple illnesses.  You should also be aware that different insurance companies may require different premiums for these types of policies.  So, choosing the right one at a price you can afford requires some effort.

What makes up an insurance policy?

·         Declaration page

  This page is usually the first part of the insurance policy.  It determines who is insured, what risks or assets are covered, the limits of the policy and the period of validity of the policy (ie the duration of the policy).  For example, the car policy declaration page will contain a description of the vehicle to which the action applies (eg make / model, VIN number), the name of the person covered by the insurance, the amount of the premium and the deductible (the amount you have to pay for the claim before the insurer pays its share of the covered claim).

  Similarly, the life insurance policy declaration page will contain the name of the insured person and the nominal amount of the life insurance policy (for example, $ 25,000, $ 50,000, etc.).

·         Insurance agreement

  This is a summary of the main promises of the insurance company and it is stated that it is covered.  In the insurance contract, the insurer agrees to take certain actions, for example, to pay damages for the risks covered, to provide certain services or agrees to protect the insured in a lawsuit.  There are two main forms of insurance contract:

  • Coverage of these risks, which covers only those risks that are specifically listed in the policy.  If the danger is not specified, it is not covered.
  • Coverage of all risks, according to which all losses are covered, except for those losses that are specifically excluded.  If the loss is not excluded, it is covered.  Life insurance policies are usually all risk policies.

·         Exclusion

  Exceptions exclude coverage from the Insurance Contract.  There are three main types of exceptions: Excluded perils or causes of loss, excluded losses, and excluded property.  Typical examples of excluded hazards under homeowners’ policies are floods, earthquakes and nuclear radiation.  A typical example of excluded car insurance damage is wear and tear.  Examples of foreclosed property in accordance with homeowners’ policies are personal property, such as a car, pet, or airplane.

·         Conditions

  Conditions are provisions included in the policy that qualify or limit the insurer’s promise to pay or fulfill.  If the terms of the policy are not met, the insurer may refuse to satisfy the claim.  The general terms of the policy include the requirement to provide evidence of damage to the company, to protect property after damage, and to cooperate in investigating the company or defending against liability.

·         Definition

  Most policies have a “Definitions” section that defines specific terms used in the policy.  This can be a separate section or part of another section.  It is important to read this section to understand the terms used in the policy.

·         Endorsements and riders

  The Insurer may change the language or coverage of the policy during the renewal of the policy.  Confirmations and riders are written terms that add, remove, or change the terms of the original insurance contract.  In most states, the insurer is required to send you a copy of the changes to your policy.  It is important to read all the recommendations or riders to understand how your policy has changed and whether it still meets your needs.

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  What are the types of insurance policy?

·         Long-term disability insurance policy

  Long-term disability involves a cash benefit equal to part (for example, 50% or 60%) of the salary of the insured for disability coverage.  Long-term disability usually begins when short-term disability ends.  To receive assistance, disability must occur after the issuance of the policy, and then, as a rule, after the waiting period.  Medical information, often confirmed by a physician, should be provided to the insurer for review.

·         Life insurance policy

  Life insurance protects people who are financially dependent on you.  If your parents, wife, children or other loved ones face financial difficulties if you die, life insurance should be one of the first insurance policies on your list.  Think about how much you earn each year (and how many years you plan to stay at work), and buy a policy to replace that income in the event of your untimely death.  Also consider the cost of burial, as the unexpected cost is a burden for many families.

·         Medical insurance policy

  The rising cost of health care is reason enough to make health insurance necessary.  Even a simple visit to the family doctor can lead to solid bills.  More serious injuries that result in a hospital stay can lead to bills that exceed the cost of a week’s stay at a luxury resort.  Injuries that require surgery can quickly increase five-figure costs.  Although the cost of health insurance is a financial burden for almost everyone, the potential cost of lack of coverage is much higher.

·         Homeowner’s insurance policy

  Replacing a house is an expensive offer.  Having the right homeowner’s insurance can make this process easier.  When buying a policy, look for one that covers the replacement of construction and contents, as well as the cost of living elsewhere while your home is being renovated.

·         Car insurance policy

  Some level of car insurance is required by law in most countries.  Even if you don’t have to have it, and you’re driving an old block that has paid off over the years, car insurance is something you shouldn’t miss.  If you have an accident and someone is injured or their property has been damaged, you can sue, which can cost you everything you have.  Accidents happen quickly, and the consequences are often tragic.  Lack of car insurance or purchasing only the minimum necessary coverage saves only a tiny amount of money and puts at risk everything else you have.

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