Insurance is a household word but is big business in the modern world. However, the concept of insurance coverage dates back to the dawn of civilization. Accounts of merchants seeking to insure the goods they carried can be dated back to 2nd millennia B.C. There are records of Babylonian merchants paying premiums on loans to minimize the risk of their cargo being lost at sea, as well as similar practices by sailing traders of Athenian origin. These practices continued in the sailing world for centuries. By the 17th century, the practice had reached Britain, and in 1666, the Great Fire of London led to the introduction of home insurance, specifically insurance against fires. The concept eventually spread to covering other day to day dangers and insurance also started covering business premises.
Modern insurance is a contract between an individual, known as a policyholder, and (in most cases) an insurance company. According to this contract, the insurance company will provide partial coverage of a policyholder’s loss as long as the policyholder meets certain prerequisites in the insurance contract. The policyholder pays a premium in order to obtain the insurance coverage. In most cases, premiums are paid at monthly intervals but can also be paid all together or at other intervals. Should the policyholder experience a loss, such as a house fire or suddenly have unforeseen expenses such as medical bills, he or she can file for reimbursement with the insurance company. For example, an auto liability insurance policy will pay for the damage sustained in another vehicle and the injuries to its occupants in an automobile accident in which the policyholder was at fault.
In most cases, an insurance company will use a process called underwriting to evaluate the risk factors of new policyholders and calculate the possible likelihood that the new policyholder will suffer from a covered loss and file for a claim. Individuals with a higher possible likelihood will be charged higher premiums. For example, a cigarette smoker will be charged higher premiums for health insurance. Each insurance company has a different underwriting process and uses a different formula to calculate the risk of a policyholder suffering from a covered loss.
Almost all kinds of insurance policies have what is called a “deductible.” A deductible is an amount the policyholder must pay out of his or her own pocket before the insurance policy will cover a covered loss. As an example, if a policyholder has a house insurance policy agreeing to cover house fires with a $1000 deductible, and a house fire occurs resulting in $5000 damage, the policyholder will have to pay a $1000 before the insurance company will agree to cover the remaining $4000. Policyholders can usually choose the deductible they want. Policyholders wanting to pay lower premiums can choose to pay higher deductibles. However, the higher the deductible a policyholder chooses, the less benefit he or she will get from the insurance policy.
Why do we need insurance?
The availability of insurance coverage has stemmed for people and businesses that need an economic safety net for losses resulting from unforeseen circumstances. Ancient sea traders needed insurance because of the losses they incurred as a result of sea storms and other circumstances beyond their control. Household insurance was needed because fires resulted in huge losses to homeowners and residents. Similarly, an individual in the modern world will need health insurance because they won’t know when and how they could incur medical expenses and whether or not they will have the financial power to pay the full expense they have incurred.
Essentially, insurance is a way to manage risks. When a policymaker buys insurance, the cost of a potential loss becomes transferred to an insurance company in exchange for a fee. Think of it as buying financial protection. People need this financial protection because life can often result in scenarios where people will need it. Here are some examples of different kinds of insurance and why they are needed:
A sudden illness or accident
Even healthy individuals can suffer from an unforeseen illness or injury that can require them to pay costly medical bills out of their pocket if they don’t have health insurance. In many cases, surprisingly, common illnesses and medical conditions can result in medical bills going into the tens of thousands of dollars in treatment costs, excluding the costs of post-operative healthcare and rehabilitation. It is always a good option to have health insurance because most individuals could never afford to pay the full cost of healthcare. They can benefit greatly by paying premiums that they can afford on health insurance.
Domestic accidents, natural disasters and home invasion
These are occurrences that can damage or result in the loss of your home or household property. Electrical and kitchen accidents resulting in fires can cause millions of dollars worth in damages every year. Natural disasters like floods, storms and earthquakes can result in costly damages, and replacing items commonly stolen in home invasions such as electronics or jewelry can take a huge chunk out of your income. Being insured can provide coverage for these relatively common occurrences.
Loss of a loved one
A family’s grieving period can be compounded when the deceased was also an earner and financial provider to the household. Everyone cannot leave their family behind a large and comfortable inheritance, but a life insurance policy is an effective way to protect ones family from this situation. It gives them a financial shock absorber during their difficult time. A life insurance policy can also help a family by giving them the means to pay off a mortgage, credit card bills, loans, household bills, child care expenses, tuition, financial expenses as well as immediate expenses like funeral costs and taxes.
Owning a car
Owning a car comes with a number of financial risks. Automobile accidents are a common everyday occurrence and can leave people liable for damages to another person’s property and person. Paying off these liability charges out of your own pocket can be very expensive when compared to having a car insurance policy.
If you need to file an insurance claim for any loss or damages you have suffered, hire an insurance attorney to handle your case. Most lawyers who represent policyholders in disputes with their insurers work under a contingent fee agreement, which means that the attorney will get a portion from the recovery they are able to get for you.
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