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Insurance: The Common Insurance Points
By: Joseph Kenny
Most people will be familiar with insurance in some form or another. We all have
taken out home insurance, car insurance or credit insurance among others.
Insurance contracts are long and complex documents with a lot of small print.
Sometimes even a lawyer would get lost in the complexities involved in them.
However, there are a few features that all insurance contracts must have in
common.
All insurance contracts will cover a chance event that may or may not occur.
This is the risk you are insuring against. The event may be a fire in your home,
a car accident, medical costs or virtually any other event. The sole exception
to this is life insurance, which covers your death. This is an event that is
bound to occur, however, it is the timing of death that is uncertain here.
There must be some quantifiable economic loss. Insurers will take on risks, but
they must be able to quantify and predict the loss involved. The insurance
company must be able to know roughly what kind of loss will be involved should
the event occur. The loss must be quantifiable in monetary terms. For example,
you may be able to insure yourself for medical expenses or a new car, but not
for the sadness you experience as a result of an accident.
The loss must be definite. Again, insurers must know what kind of financial
risks they are taking one; otherwise they will not be able to set the price of
the premium.
The loss must be significant. The financial cost of the insured risk must
justify the administrative costs of the insurance contract. Suppose you want to
insure a racehorse. Someone will come from the insurance company, assess the
value of the horse, write up a contract stating what’s covered and what
conditions you must meet, calculate the premium and issue the contract. This
will be worth all the effort for a valuable racehorse. However if you wanted to
insure your goldfish, it would be difficult to justify the effort involved in
setting up the contract.
The loss must not be catastrophic. What is catastrophic will depend on the size
of the insurer and the assets they have available. But the insurance will not be
worth anything if the loss is more than the insurer could afford. For example,
insuring against an earthquake will often be impossible as the losses, should
the event occur, would be impossible for the insurance company to ever pay out.
About the Author:
Joseph Kenny is the webmaster of the insurance site http://www.insure121.com/ where you will find information, news and links to the leading providers of insurance in the UK. If you found this article interesting you may find more articles of the same nature in the insurance guide located on site. |
