What Is Insurance ?


Insurance is a means of protection against financial losses. This is a form of risk management, used mainly to protect against a possible or uncertain loss.

An entity that provides insurance is known as an insurer, insurance company, insurer or insurer. A person or entity that contracts insurance is known as insured or insured. The insurance transaction implies that the insured assumes a relatively small loss guaranteed and known in the form of payment to the insurer in exchange for the promise of the insurer to indemnify the insured in case of a covered loss. The loss may or may not be financial, but it must be able to be reduced to financial terms and generally implies something in which the insured has an insurable interest established by the property, possession or a pre-existing relationship.

The insured receives a contract, called an insurance policy, which details the conditions and circumstances under which the insurer will indemnify the insured. The amount of money charged by the insurer to the insured for the coverage defined in the insurance policy is called premium. If the insured suffers a claim potentially covered by the insurance policy, he presents the claimant with a claim for treatment by a claim adjuster. The insurer can cover its own risk by contracting reinsurance, and another insurance company accepts to assume part of the risk, especially if the insurer considers that the risk is too great for him.

Components Of The Insurance Policy

When choosing a policy, it is important to understand how insurance works.

[Important: the three essential components of insurance policies are premium, policy limit and deductible.]

A good understanding of these concepts helps you choose the policy that best suits your needs.


The premium of a policy is its price, usually expressed in monthly cost. The insurer determines the premium based on its risk profile or that of its company, which may include solvency. For example, if you own many luxury cars and have a history of reckless driving, you will likely pay more for a car policy than someone who owns a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies; Therefore, finding the right price for you requires some preliminary work.

Limit of the policy

The policy limit is the maximum amount that an insurer will pay under a policy for a covered loss. The maximums can be established per period (for example, annual or contract term), loss or damage, or during the term of the contract, also called maximum for life. In general, the higher limits have higher premiums. In the case of a general life insurance policy, the maximum amount that the insurer will pay is called face value, which is the amount paid to a beneficiary in the event of the death of the insured.


The deductible is a specific amount that the policyholder must pay out of his pocket before the insurer settles a claim. Franchises have a deterrent effect on large volumes of small and insignificant claims. Franchises can be applied by policy or claim, depending on the insurer and the type of policy. Policies with very high deductibles are generally cheaper because high personal expenses usually reduce the number of small claims.

Special considerations

Special With regard to health insurance, people with chronic health problems or who need regular medical care should look for reduced deductible policies. Although the annual premium is higher than a comparable policy with a higher deductible, access to less expensive medical care throughout the year may be worthwhile.

Key points

Insurance is a contract (policy) in which an insurer compensates another for losses resulting from contingencies and / or specific hazards.

There are several types of insurance policies. Life, health, homeowners and automobiles are the most common forms of insurance.

The components that make up most insurance policies are the deductible, the policy limit and the premium.