Insurance Meaning, Types, and Terms You Must Know

The term insurance is pretty straightforward. It is a contract that provides protection to an entity against a loss. This protection, therefore, guarantees reimbursement from an insurance company.

Protecting yourself is not uncommon. However, it becomes sacred when the law is involved. There is a legal agreement that covers two parties. That is, the insurer and the insured.

The insured pays the insurance company regular amounts. The insurer then agrees to provide cover against risks.

The Importance of Insurance

Insurance plays a significant role in situations where a loss occurs. For instance, in the death of a policyholder who has paid a premium for life insurance. The insurer will compensate the beneficiaries when due.

Similarly, imagine someone’s bad circumstance due to a cover. Now imagine the opposite – that is, one who had no cover and could not make it through a fire occurrence that has claimed their properties.

However, it’s a common myth that having savings is sufficient protection against unexpected events. Some people believe they don’t need insurance because they have savings. Relying solely on your savings for unexpected events can be risky and dangerous in the long run. Unforeseen events can come up and eat up all your savings leaving you without money. Insurance is designed to protect your savings by covering costs that can often far exceed what most people can save, thus protecting your financial stability.

Types of Insurance

There are lots of different types depending on what exactly you wish to protect – property, business ideas, or whatever. These are some of the insurance policies you can get: Life, Health, Home, Auto/Car, Engineering, and Business Insurance. These are different from principles of insurance which must be studied as well.

Read more on the types of insurance in Nigeria.

Insurance terminologies You Should Be Familiar with

Here are terms to get used to:

1. Insurance Policy:

This is a contract between an insurer and the insured. The Insurance policy is vital because it determines the claims the insurer should cover.

2. Insurance Premium:

This is the amount of money an individual pays for a policy.

3. Insurance Broker:

This is a risk management specialist that provides advice in the interest of their clients.

4. Insurance Agent:

This is an individual or organization that solicits and negotiates contracts on behalf of the insurer. Read more

5. Insurance Underwriter:

Lastly, this is a person who evaluates and analyzes risks in insuring people and assets.

Frequently Asked Questions

Some of the most frequently asked questions include:

What is an insurance company?

This is a company that provides and sells insurance. Therefore, these companies only pay out a percentage of the replacement cost.

What is risk in insurance?

Risk is the chance that something harmful could happen. In other words, this might be loss, theft, or damage to valuables.

What is a proposal form?

This is a form completed by the policyholder when applying for a cover.

What is a claim?

Basically, this is a request made to an insurer by a policyholder to provide compensation for a covered loss. Read also Capital formation

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Categories: General Insurance