Category: PET INSURANCE

What is Insurance? 

According to Wikipedia, Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

Insurance

An entity that provides insurance is known as an insurer, an insurance company, an insurance carrier, or an underwriter.

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

An entity that provides insurance is known as an insurer, an insurance company, an insurance carrier, or an underwriter. A person or entity who buys insurance is known as a policyholder, while a person or entity covered under the policy is called an insured.

Policyholder and insured are often used but are not necessarily synonyms, as coverage can sometimes extend to additional insureds who did not buy the insurance.

The insurance transaction involves the policyholder assuming a guaranteed, known, and a relatively small loss in the form of payment to the insurer (a premium) in exchange for the insurer’s promise to compensate the insured in the event of a covered loss.

The loss may or may not be financial, but it must be reducible to financial terms.

Furthermore, it usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.

The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured, or their designated beneficiary or assignee.

The amount of money charged by the insurer to the policyholder for the coverage set forth in the insurance policy is called the premium.

If the insured experiences a loss that is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.

A mandatory out-of-pocket expense required by an insurance policy before an insurer will pay a claim is called a deductible (or if required by a health insurance policy, a copayment).

The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risks, especially if the primary insurer deems the risk too large for it to carry.

How Insurance Works

There is a multitude of 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. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.

INSURANCE KEY TAKEAWAYS

  • Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils. 1
  • There are many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.2
  • The core components that make up most insurance policies are the deductible, policy limit, and premium.

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

For example, a fast-food restaurant needs a 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.

IMPORTANT: In order to select the best policy for you or your family, it is important to pay attention to the three critical components of most insurance policies—the deductible, premium, and policy limit. 

There are also insurance policies available for very specific needs, such as kidnap and ransom (K&R), 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.  A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs.

For instance, whole life insurance may or may not be the right type of life insurance for you. There are three components of any type of insurance (premium, policy limit, and deductible) that are crucial.

Premium

A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness.

For example, if you own several expensive automobiles and have a history of reckless 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 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.

Deductible

The deductible is a specific amount the policyholder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims.

Deductibles can apply per policy or per claim depending on the insurer and the type of policy.

Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.

Special Considerations

With regard to health insurance, people who have chronic health issues or need regular medical attention should look for policies with lower deductibles.

Though the annual premium is higher than a comparable policy with a higher deductible, less expensive access to medical care throughout the year may be worth the trade-off.

Below are some Pet Insurance topics you might be interested in: 

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