definition of insurance

Insurance: Definition, How it Works, and Its Workflow

In this article, we will discuss insurance which includes its understanding, how it works, and its workflow. I hope this information is helpful. Happy reading.

Definition of Insurance

Insurance is a legal agreement between two parties, namely the insurance company (the insurer) and the customer (the insured). In this case, the insurance company promises to compensate the insured for the insured contingency.

Contingencies are events that may occur in the future. Called contingency because there is uncertainty related to the event. The insured pays a premium in return for the promise made by the insurance company.

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How Does Insurance Work?

After knowing the meaning of insurance, it is important for you to understand how insurance works. After making sure to choose insurance, the insurer and the insured then make an insurance policy as a sign of legal contract approval.

An insurance policy is a legal contract between an insurance company and a customer. The contract sets out the terms and conditions under which you agree to pay premiums to the insurance company. Likewise, insurance companies agree to compensate you for unexpected losses.

With insurance, you choose what you want to protect. Then your insurance company calculates the risk about the insured event (if it will happen later) and the insurance provider or insurer will determine the price you have to pay (your premium).

Insurance Workflow

There are several steps to knowing how Insurance works. For information, as follows:

1. Choosing the Right Type of Insurance

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An insurance policy is a document that lists exactly what you are covered or not. There are several types of insurance ranging from health insurance, life insurance, accident insurance, home insurance, to travel insurance.

2. Payment of Insurance Premium

An insurance premium is the amount you pay for an insurance policy. Insurance premiums will vary depending on the type of coverage you choose, as well as the risks.

Insurance companies offer different options when you buy an insurance policy. The more coverage you get, or the wider coverage you choose, the higher your insurance premium will be.

Your insurance history, place of residence, and other life factors are used as part of the calculation to determine the insurance premium to be charged. Each insurance company uses different rating criteria.

3. Submission of Insurance Claims

An insurance claim is a policyholder’s formal request to an insurance company for protection or compensation for a loss or policy event that is covered.

The insurance company checks whether the incident is covered by the policy or not. If approved, the insurer will issue payments to the customer or an approved third party on behalf of the insured.

Insurance claims cover a wide range of things from routine and comprehensive medical check-ups to cover for death costs on a life insurance policy. In some cases, third parties may file claims on behalf of the insured. However, in the vast majority of cases, only the person registered with the policy is entitled to claim payment.

Knowing the meaning of insurance and how insurance works is important, especially for ordinary people in the insurance world. In addition, it is also a good idea to understand the insurance company’s policies before deciding to buy an insurance policy.

This is the information we can provide. Don’t forget to share the information in this article if you found this article useful. See you in other articles about finance.

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