Monday, 10 January 2022 01:12

What is insurance?

Written by Evelyn Alas

Insurance is a financial instrument that allows individuals, companies and the State to transfer their risks to a third party -person or company-, through the payment of a sum of money.

Thus, in the event of the occurrence of the events covered by the insurance contract, the third party must pay the insured an indemnity or a sum insured, or must provide a service, in accordance with the terms of the policy.

In this way, insurance helps people to recover from the effects produced by the unexpected situation, and their quality of life and that of their family is not compromised.

Below you will find key information that will help you better understand how insurance works.

Insurance policy: this is the document issued by the insurance company and where all the coverage conditions of the contracted insurance are indicated.

Premium: this is what is paid for the insurance, that is to say its cost. It can be paid in cash and sometimes in installments, depending on the type of insurance.

Policyholder: the person who purchases the insurance. It is generally the same person who pays for it.

Insured: is the person who may be affected in the event that the risk covered by the insurance materializes.

Beneficiary: the person to whom the indemnity is paid or the service is rendered when the risk covered by the insurance materializes.

Insured value: the amount received by the affected party as indemnity for the occurrence of the risk covered by the insurance.

Deductible: is the sum of money to be assumed by the person receiving the indemnity. In other words, it is the amount that the insurance company does not pay to the beneficiary.

Exclusions: these are specific conditions that are not covered in the insurance contract. In other words, if such situations occur, the company does not pay the indemnity or provide the contracted service.

Insurance Companies

Insurers or insurance companies are financial institutions specialized in offering different types of insurance to protect individuals and/or companies from the risks they, their assets or their patrimony may face.

By paying a premium, which is the value of the insurance, the insured transfers the risk to the insurance company. In the event of a loss, the insurer must pay an indemnity, the insured value, or in certain cases provide a service.