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What is Insurance?

Insurance is the method of pooling together resources and spreading the risk around. In this context, insurance can be a pooling of many aspects, such as living and non-living things. Livings things of course would mean all humans, while non-living things would include things that are non-life forms. Below would explain what we mean and the type of insurances.

Types of Insurances?

1. Life Insurance
By it's name "life" means that it represents insurance protecting a living person. For example, any human being can buy a life insurance product and if he or she dies, the pay-out which is the sum insured is paid out to the surviving family members.

Life insurance can also be benefited from, such as in the event of the death of an insured, at that point of death, the person may not have many liquid assets or that his/her other assets may not have gotten a good price from the sale of the asset, but with life insurance proceeds, the fear of selling an asset below its fair value may not be a concern because any life insurance proceeds can definitely cover any of the illiquid assets.

2. General or Non-Life Insurance
This type of insurances are what we call non-life insurance. That means that insurance companies insure anything else with a value place on it.

Types of assets you can insure are, your home, car, businesses, goods, etc.

This sort of insurance are contracted base on indemnity basis and you cannot profit from it. It is more of a replacement of asset kind of insurance.

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The following are regular terms used in insurances:
- Underwriting
A process done by insurance companies to determine if the applicant is fit to be offered the insurance application.

The person who does the underwriting process in the insurance company is called the Underwriter.

- Mortality
Mortality is the term used to calculate the age of a person that will most likely die. Premiums are then charge base on the mortality rates. Gender is an important factor when calculating mortality rates.

- Premiums
Premiums is the amount of money that the insurance company charge the insured on purchasing the insurance. Premiums can be single/lump sum, annual, semi-annual, quarterly, monthly, recurring, etc.

- Actuary
Actuary is a science that is used to gather financial datas and calculate all insurance costs. It involves, previous death claims, investment returns, mortality rates to come up with a product that is profitable for the insurance company.

- Lien
Lien is a counter offer to the regular insurance. It is a lower sum insured as compared to the actual sum insured. This happens when during the underwriting process, the underwriters found that the insured has a certain condition that does not warrant the insured to get the full coverage, a lien will be imposed. The insured must accept the insurance company lien offer before any contract can be issued.

- Loading
Loading means that additional premiums are added on top of the regular premiums due to sub-standard of the insured. This could result from claims experience or health issues.

Instead of the normal premiums paid by the standard insured, a loading is impose on sub-standard insured and therefore these sub-standard insured needs to pay more.

- Sub-standard
Sub-standard is the term used to differentiate between good insured and not so good insured. Good insured will pay the normal rates insurance companies charge. Sub-standard will have to pay either additional premiums are have to accept a 'lien' impose by the insurance company.

- Mobility
Mobility is the opposite of mortality. It is the calculation of high long an insured will live. It is a mathematical method used to calculate especially for Annuity plans. Therefore the pricing of annuity plans comes from the mobility rates.

- Risk
Risk in insurance is associated with risk management. They can be either, accepted, retain, spread or transfered.

- Insured
Insured is usually the person or things being the part that insurance company insure on any financial loss.

- Assured
Assured are usually the owners of the insurance policies. They can also be the insured or just the assured.

- Beneficiary
Beneficiary are usually people or entities who will benefit from the policy whenever a claim is made. The pay out of insurance monies are usually given to the beneficiary, subject to the countries laws and legislation pertaining to beneficiaries.

- Claims
Claims means that whenever a loss occurs and the loss is insured with an insurance company, the assured who is the owner of the loss will file for a claim against the loss. Thus the arrival of the word 'claims' in insurance. It is also called an insurance claim.

- Acceptance
When an insurance company accepts an application for insurance, it usually means that the insurance company have accepted the application and will cover the insured against any financial loss on the agreed insured amount which is called the sum assured.

In return the insured must accept the offer of the insurance company and begin to start paying the premiums before the insurance cover can be effective.

- Decline
An insurance company does not want to accept the application. This is a full declination. This is very rare unless the circumstances to accept the risk is so extreme that the insurance company will deem to make a loss if they accept this risk. Example, a person who buys a Ferrari and wants to insure his Ferrari. Most insurance companies do not insure sports car as they are deem to be of high risk. Any loss is usually not good on the insurance company, thus a decline is given.

- Sum Assured
The amount to be insured by the insurance company.

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