Insurance For Beginners

Risks are something we are surrounded by as we partake in our daily activities. We are faced with the risk of financial loss, theft, property loss, and even the risk of death. These circumstances are often unanticipated and may result in devastating losses. In a bid to protect their interests and property, it isn't uncommon for people to consider seeking protection from an insurance company. As such, insurance offers a means to protect ourselves in a situation that a devastating event occurs.

Insurance is a legal contract/agreement between two parties, the insurer (insurance company) and the insured (the individual seeking insurance).  The insurance company agrees to take on the impact of loss in a situation that the “insured” experiences an event that may result in a loss. The loss may be in the form of theft, destruction of property, foreclosure of a business, and even death. As compensation, the insured pays the insurance company an agreed premium for the promise of protection. The insured enjoys financial protection and reimbursement in a situation of loss from the insurance company.

There are specific terminologies you need to know to understand better what insurance entails.  This knowledge would come in handy when selecting an insurance plan to protect you from losses. Some of these terminologies include:

This is a legally binding document between the insurer and the insurance company that explicitly states the insurance agreement’s details between the parties, including the benefits, terms, and conditions. The legal document is referred to as an insurance policy. It states the conditions in which the insurance company would cover the losses for an event. It clearly outlines the specific event the individual is being insured against, such as car theft, health conditions expenses, property destruction, etc.

The insurance policy is set up to the needs of the insurer. For instance, a factory owner may set up an insurance policy covering an accident’s costs to a factory worker.

The insurance policy states the premium which the insured is expected to pay often monthly. It might be considered as the monthly cost of getting insured. The insurance company determines the premium based on the creditworthiness of the individual and the person’s risk profile. For instance, a person with several expensive gadgets with a history of careless handling may pay a higher premium than a person with a moderately expensive gadget known for being careful.

The premium range may differ from one insurer to the next. As such, some insurers may charge a higher premium for similar policies. As such, you need to do some research to choose the insurer that works best for you.

Often, the premium for the insurance is lesser in terms of the money paid to the insured in the event of loss occurs. The insurance company, therefore, takes the risk of offering insurance for a small premium. However, the numbers of people who end up claiming insurance are lesser. This is because the insurance company only pays reimbursement if the loss occurs. It should not be mistaken for a savings account where you can get your funds back if you don’t experience a loss. Yet, it comes very handily when you experience a more significant loss than you initially anticipated.

Premium allows you access a bigger compensation at a low price. Any individual or company may seek insurance from an insurance company. Yet, the decision to provide insurance is at the discretion of the insurer. Therefore, certain insurance companies may require their potential clients to go through an evaluation process. It is important to note that insurance companies may refuse to provide insurance for high-risk individuals.

The policy limit is the maximum amount an insurance company would pay under a policy to an insured individual in the event of the covered loss. The limit could be set per period (annual), per loss, or even over the policy’s life. Higher policy limits often equate to higher premiums. However, for life insurance (insurance against death), the insurer pays face value. This refers to the amount paid to the listed beneficiary upon the death of the insured.

This is a specific amount the policyholder (insured) must pay out of their pocket before the insurer pays the compensation. It is often set as a deterrent to clients to reduce the amount of more minor or insignificant claims made. This is because policies that have higher deductibles reduce minor claims from policyholders. Deductibles may be set per policy or per claim depending on the type of policy or the insurer’s discretion.

People seeking health insurance who need regular medical attention, perhaps because of chronic health issues, would best consider policies with lower deductibles because of numerous claims which may occur. Although the annual premium might be higher, it is more cost-effective than paying higher deductibles in the long run.

This refers to a request by an insured individual to the insurer to provide compensation to cover a loss.

This refers to a form or application completed by an individual seeking cover from an insurance company.

This usually refers to a risk management specialist who offers individuals professional advice on the best insurance policies.  

This refers to an individual or organization that assists the insurer in soliciting and negotiating contracts.

Several insurance products are available for individuals and companies, dependent on the risk they wish to be insured from. Generally, the types of insurance can be divided into two broad categories.  

A.    Life insurance products

Life insurance covers the insured individual against the risk of death. The insured individual is protected from life risks. There are different variants of life insurance that vary according to the insurer. It may serve as a savings tool as it combines the person’s premium and insurance protection. It is the insurance on an individual’s life, and it is bought to ensure that your dependents are saved from financial hardship in the case of your untimely death.

The policyholder’s family is financially compensated in a situation that the policyholder dies during the term of the policy. The assured sum stipulated in the insurance policy is paid out as compensation to beneficiaries and can be used to cover debts, funeral provisions and ensure the financial stability of the dependents of the policyholder.

However, often life insurance is bypassed in preference for non-life insurance. This is because people tend to insure their valuable assets rather than ensure financial protection for their dependents. Life insurance is essential for breadwinners of families who have dependents solely dependent on their source of income.

B.   Non-life products

A non-life insurance product provides the individual insured compensation for loss, destruction of valuable assets the individual has insured. Often it covers valuable assets like automobiles, property, and financial losses. Non-life insurance covers more than valuable material things but can also insure against domestic and industrial accidents. It generally covers all financial losses other than death.

Insurance companies offer several insurance products. Yet, often they fall into two distinct categories. Specific differences help identify which category an insurance product/policy belongs to. Some of these differences include:

Life insurance may be considered an investment and not necessarily a contract of indemnity. That is, it is not a protection against a loss or any other financial burden. While Non-life insurance is considered an indemnity contract in that it covers the financial burden an insured may experience as a consequence of a loss.

Life insurance policies are long-term and may even extend to the death of the insured, while non-life insurance policies are often short-term.

For a life insurance policy, claims can only be made after the policyholder’s death or after the policy’s maturity. While for non-life insurance policies, claims are made per loss suffered by the policyholder.

The policy cost is determined by the amount promised at maturity of the policy for a life insurance policy. While for a non-life insurance policy, the cost of the policy is determined by the value of the asset insured.

Insurance is effective in risk management and helps protect what we consider essential: life, business, health, property, and several others. Insurance products people consider in securing their financial stability and growth include:

Health insurance is there to protect you from the health uncertainties that may occur. Taking into account the increasing cost of healthcare and the rising number of diseases getting health insurance may be an impressive financial move. There are different insurance policies such as NHIS in Nigeria that protect not only the individual but also their dependents.

Health insurance is integral in protecting you in a situation of medical emergencies. It helps cover the medical cost for expensive treatment and covers a wide range of ailments and diseases. Yet, it is essential to consult with your insurance provider to ascertain what disease and ailment your health coverage covers and doesn’t.

Automobile insurance is essential to protect your automobile (bike, car, trucks) against theft, destruction, and even automobile accidents. It ensures that the insured individual is protected from common road accidents, which is a smart choice given the recent increase in the number of road accidents. Automobile insurance is essential for every automobile owner as it helps compensate them in a situation of damage to their vehicles, even from natural calamities like tornadoes. It also provides compensation for when an accident occurs, in which the insured individual has to pay damages to other automobile owners.

Accidents are unprecedented, which is why they are referred to as accidents in the first place. They can be disastrous and could put us in a state of financial insecurity. They can even severely affect our health and even threaten our lives. Accident and disability insurance cover the costs resulting from an accident and help offer financial stability in a situation of an accident. Manufacturing companies or industries which deal with life-threatening situations often consider this insurance to protect their employees from industrial accidents.

Our home is one of our valuable possessions, and its destruction might have us homeless and losing our precious memories. This explains why ensuring your home is essential. It helps to protect your home against losses and damages that may result from accidents (fire outbreaks) and natural calamities such as lightning, tornadoes, earthquakes, among several others. It is vital to protect your home, and securing insurance is an effective solution.

With cancer on the increase and the spread of new strains of diseases like Covid 19, it is understandable why people may feel the need to secure themselves against an occurrence of these events. Critical illness insurance is set up when a health insurance plan doesn’t cover specific illnesses. It is more prevalent among people who have a family history of critical illness and comes in handy in a situation that you or any member of your family experiences a chronic illness.

Travel insurance is essential for persons who take frequent travels both locally and internationally. As such, this insurance policy is peculiar to an individual's needs. It may cover some f your travel expenses and medical costs you may incur during your trips. However, it may not be necessary if you can afford to lose a prepaid trip expense and have premium health insurance that covers all your medical costs. 

Education insurance is similar to life insurance in that it is designed similarly to a saving tool. In essence, a premium is paid to the insurance company, and a claim can be made and at the policy’s maturity. For instance, you may set up education insurance for your dependent for higher education. When the dependent gains entry for higher education or reaches the set age, they may make claims. As such, the recipient of the funds is protected and has funds to pursue their higher education. 

This is not an exhaustive list of all insurance products and may even come under different names or categories. As such, it is best, depending on your needs to consult with an insurer to identify their specific policies in determining which offers the best coverage for your needs. 

Insurance is a risk management plan that offers individuals and businesses alike an avenue to safeguard their interests and properties. It offers several benefits, which include:

Insurance provides cover and protection for individuals and businesses when they experience an event that can put them in a financial crisis. By protecting themselves from the uncertainties of life, they can experience a sense of security. With the assurance of security, they can enjoy peace of mind without being anxious, which allows them to focus on more equally essential things.

A single medical emergency can take up years of saved funds. However, even though a similar event occurs, you can be assured of your financial stability with insurance. Insurance ensures that in a situation that an unexpected event occurs, you can be secure from a financial crisis. For instance, life insurance can come in handy upon the untimely death of a person. Although the funds do not equate to the loss of a dear one, yet it ensures that the family doesn’t undergo financial hardships because of such an event.

A fire outbreak at your home or company can send you into a state of panic, with some people even suffering heart problems from this singular event creating another problem. Losses can leave you distraught mentally, physically, and emotionally. However, when you have adequate insurance, you do not have to worry about the funds at least but can focus on rebuilding something even better.  

Insurance makes it easier to access certain loan facilities. This is because banks and microfinance are more open to offering loans to individuals with protected assets. In the event of a loss, the individual or organization finds it easier to find their footing. For instance home, business loans are easier to access when the home or business has insurance cover.

Insurance helps to shield your life and valuable assets against uncertainties that may disrupt your financial stability. Insurance is an integral aspect of financial planning and security as it helps protect you from financial hardship and insecurities. However, choosing an insurance product on policy is dependent on the set requirements, benefits, and ability to pay the premium.

Many people may consider insurance an unnecessary expense because we feel we can handle uncertainties that may come our way. Yet, these circumstances often disrupt our financial stability setting us back from our financial goals. As such, insurance might just be a better alternative as it secures you against challenges that may occur as you attain financial growth. 

Yet, it is essential to remember to compare policies from insurance companies to select the one that best protects your interests when selecting insurance coverage.  When deciding the type of insurance, you should keep in mind the purpose of the cover, affordability, how long you might need the coverage, and the risk that you want to be covered. As such, you should not limit yourself to one insurance provider when selecting an insurance policy but conduct your research to get the best. Remember, the goal is to pay less for more coverage.