brokers who construct intricate schemes that leave clueless individuals high and dry. There are basic things to understand about insurance that the general public are often unaware of because it’s easy to get lost in jargon, terms and formulas. The first thing to understand about insurance is that it involves consolidating funds from a number of insured entities also referred to as exposures to pay for a loss that may occur. This therefore protects insured entities from a risk for a fee which is the installment you pay every month and this fee depends of the frequency and severity of the event you’re covered for. The most important factor is that the insured risk must meet certain characteristics and the risks insured by most private companies share the following characteristics:
1. The number of similar exposure units uses the law of large numbers to cover losses similar to predicted losses. Most insurance policies operate through consolidation but exposures are bound to have particular differences which determine the premium rates.
2. Definite loss refers to losses that occur at a specific and known time, an example is the passing away of an insured party. Sometimes occurrences such as fire, car accidents and workplace injuries fall under definite loss insurance. Of course, sufficient information and proof needs to be provided to objectify the loss.
3. Accidental loss does not cover ordinary business risks or any other event with speculative characteristics. This type of incident is of usually out of the beneficiary’s control and completely unpredictable.
4. Large loss refers to the size of the loss and the meaningfulness of the loss to the beneficiary. Premiums usually cover the cost of the expected loss, issuing costs and the administration of the policy. Then adjusting the losses and supplying the money needed to make sure that the insurer will be able to pay out for the claim.
5. An affordable premium is very important for the beneficiary. The premium is calculated according to the amount of protection offered by the company. According to financial accounting standards the premium is not allowed to be so large that there is no loss to the insurer. If the loss is unlikely then the transaction may include a type of insurance but not the substance.
6. Calculable loss involves two elements that need to be estimable and if it is not entirely calculable then the probability of loss and the attendant cost is considered. This requires the beneficiary to be in possession of the copy of the insurance policy and a proof of loss for the claim.