How Does Insurance Work? A Beginner’s Guide to Understanding Insurance
Life is full of risks and uncertainties. You could get into an accident tomorrow and sustain injuries that would leave you disabled and unable to work. You could run over someone in a road accident and render yourself liable for their losses.
Heck, you could even die an untimely death, leaving your dependents without a stash of cash in the bank.
While certainties make life worth living, they can catch you unawares. The good news is there are steps you can take to manage some of life’s risks and uncertainties.
An effective way is to purchase insurance. But how does insurance work?
Continue reading to learn more.
How Does Insurance Work?
Broadly speaking, insurance is the transfer of risk to another party, typically an insurance company. When you think you’re exposed to a certain risk, you’ll pay a certain amount of money to the insurance policy provider (premiums) and in return, the insurer will cover your risk up to a certain amount of money (liability).
When the insured event happens, you’ll file a compensation claim with your insurer. The company will conduct an investigation and pay out the claimed amount, as long as everything is within the policy’s guidelines.
Bear in mind that an insurance company can reject your claim or offer to settle for far less than you wanted. If you feel the insurer is stepping on your rights, you can always hire an insurance lawyer to handle the case on your behalf.
Now, there are several types of insurance policies, and each seems to work differently, albeit based on the general insurance framework.
Common Types of Insurance Policies
Here’s an overview of the most common types of insurance policies.
With the cost of healthcare in the United States going up every day, purchasing health insurance is a matter of priority. When you fall ill, your health insurance will pay part or whole of your medical bill.
There are also other variations of health insurance, such as disability insurance, which will pay you a certain amount of money in the event that your disability puts you off work.
Your car takes you places, but it also exposes you to a lot of liability.
If you get into an accident and you’re held at fault, you’ll need to compensate the other party. Depending on the nature of their injuries and/or damage to their car, you could be staring at a six-figure bill. Keep in mind you might also be nursing your own injuries.
Here’s is where auto insurance comes in. Depending on the type of auto insurance policy you purchase, you won’t have to dig into your pocket to cover any expense
If you’re a homeowner, you know that a natural disaster or a fire can cause extensive damage to your property.
Who will cater for the repairs? If you don’t have homeowner’s insurance, you’ll have to pay for them. But if you do, just sit back and let the insurer pay for the damage.
There are several other types of insurance, but these are the most common.
Take Advantage of Insurance
Now that you know the answer to “how does insurance work?” you really have no reason not to take advantage of it. For as little as $1,000 year, you can get coverage worth over $10,000. Isn’t it worth it?
Keep reading our blog for more helpful insights.