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Why You Need Insurance. by Patrick11 (m): 10:10am on November 5
Lebi Oluwaseyi
, Nigeria.
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What is Insurance?
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.

The company pools clients’ risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

Types of insurance
There are different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them, for a price.

The most common types of personal insurance policies are auto, health, homeowners, and life.

Insurance for business
Businesses require special types of insurance policies that insure against specific types of risks faced by the particular business.

For example, a fast food restaurant needs an insurance policy that covers damage or injury that occurs as a result of cooking with a deep fryer.

An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives.

There are also insurance policies available for very specific needs, such as medical malpractice, and professional liability insurance, also known as errors and omissions insurance.

Insurance policy components
When choosing a policy, it is important to understand how insurance works.

Some important components of insurance policies are the premium as well as the policy limit.

A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs.

Policy premium
A policy’s premium is its price, typically expressed as a monthly cost.

The premium is determined by the insurer based on risk profile.

For example, if you own several expensive automobiles and have a history of accidents while driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record.

However, different insurers may charge different premiums for similar policies; so, finding the price that is right for you requires some legwork.

Policy limit
The policy limit is the maximum amount an insurer will pay under a policy for a covered or insured loss.

Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum.

Typically, higher limits carry higher premiums.

For a general life insurance policy, the maximum amount the insurer will pay is referred to as the face value, which is the amount paid to a beneficiary upon the death of the insured.


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