How does Insurance Operate?
The contribution paid by a policyholder is known as the premium. The premiums are paid to the insurers who in turn accumulate the money into a fund from which claims are paid. Insurers are professional risk takers. They know the probability of different types of risk. Then they can calculate the premiums needed to create a fund large enough to cover any likely loss payments. Clearly only a proportion of the policyholders will require compensation from the fund at any one time.
For example, in car insurance a young person with a high-powered car, or a driver with a long history of accidents, will pay a higher premium than a mature and experienced driver with a modest saloon and a claim free record.
client provInsurance Types
There are 2 kinds of insurance, life insurance and general insurance. When you buy a life insurance policy you enter a long-term commitment where you agree to pay a fixed premium for a set number of years.
General insurance pays out IF something happens: a car has an accident, a house is burgled, a holiday is cancelled, someone is careless and damages another person’s property. Most life insurance policies pay out WHEN an event happens, when someone dies or when someone survives beyond a certain date.
What is Insurable Interest?
Insurable interest is a fundamental insurance principle. It means that the person wishing to take out the insurance must be legally entitled to insure the article, or event, or life. The happening of the event insured against must cause the policyholder financial loss. For example; Mr Smith would not be able to insure Mr Brown’s house because its destruction would not cause Mr Smith financial loss.
