Although it may seem trivial, we are constantly being exposed to numerous risks. And, not everyone can manage when an unknown event results in a loss to one’s assets. There could even be a loss of life. So, there are risks, and how we can manage those risks? Answer: Insurance.
What is Insurance?
Through insurance, we can manage our risks. It helps one compensate against loss, damage, or any other liability which could arise from an unknown event. So, what we do is share such risk among a group of people. That way we could reduce the liability on an individual to a great extent.
Insurance is basically a contract that helps an individual by financially compensating him or her in an unknown event that could lead to loss of any kind. That way an individual wouldn’t have to bear the financial burden which arises from such liability.
Someone who purchases an insurance policy is the policy holder or policy owner. And, the organization (or, the insurance company) which protects the policy owner or insured against risks is the insurer. And, the insured would have to pay a certain amount or premium to the insurer.
This way the insurer agrees to pay the insured a sum (or, the benefit) as per the terms of the policy in case an unknown event occurs. The terms of such an unknown event are defined in the insurance policy and the compensation is paid accordingly. But, the individual who has suffered a loss would have to make a claim. The claim basically is a request to the insurer to compensate the policy owner or the insured as per the terms defined in the insurance contract.
When the insurer receives a request for the claim then it would now ensure that the claim by the policy owner is justified and as per the terms defined in the policy. Thereafter, the insurer would initiate the claim settlement process.
One term which you would hear often is indemnify. It is the way to compensate or secure someone against any liability. This helps the policy owner to recover the loss due to an unknown event.
Conclusion
Insurance spending in OECD member countries has been steadily rising and as per the available data for the year 2020, it is now about 9.44% of the total GDP.
Insurance is a great tool to manage our risks. Buying an insurance policy isn’t restricted to individuals. Even organizations can secure themselves financially from a mishap.