Introduction to Insurance

Over the globe, the term insurance is familiar for everyone but however most of us we do not truly understand the world of insurance and how does it work. Let's have some basic understanding of how insurance work, first of all; insurance is working based on the concept of indemnity which is to recover the losses of the insured (people who buy insurance) by the insurer (corporation that sell insurance to the public to protect the insurance buyer). In most insurance case, no matter how much sum assured the insured had purchase the insurance company will only recover the losses of the insured accordingly and no the total sum insured. For example, if an insured who purchase insurance for his car with a sum assured of 50,000 and the car were destroyed in an accident and during the time of the accident the car is worth 35,000 then the insurance company will only indemnify the insured of 35,000 and not 50,000. Under the concept of insurance the insured shall not make a "profit" out of his losses and thus the insurance company will not pay more than the insured losses except for life insurance whereby the life of person is insured and since we cannot place a definite value on the life of a person, thus customer should realize that the concept of indemnity cannot be used here.

 

Around the globe, there are many sales person that is selling insurance to the public and adopt the push approach to the public which result in most public purchase unnecessary insurance policy and in many country this type of case always exist. It has to be understood that insurance should not overly purchase and only purchase adequate sum assured is all that is needed for a person. Detail explanation will be given in the coming article in regards to some example of how to determine whether a person is adequately insured or not.

It has to be understood that insurance is somewhat related and should be discussed by a financial guide, because a person financial ability will be affected by lack of insurance coverage and thus a wise financial planning should include the part of insurance as well. There are 3 main type of insurance which is the general insurance, investment link insurance, life insurance. Each of this type of insurance works differently which will be discussed on the coming article.

As conclusion, the insurance cannot be used as a tool to make a profit out of it and a person should not overly purchase insurance to the extent of not being able to afford other investment. And investor should understand that there is different type of insurance that works differently, which indemnify the customer differently as well.