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Insurance For Beginners
INTRODUCTION
Welcome to the global business guide. In this context, we will be taking
about the insurance industry, the general definition of insurance, adequate and
precise explanation of the definition, brief talk about the history, the
insurer, the insured, classes of insurance, the role of the underwriter in the
industry and how you as an individual can benefit maximally when you get
yourself, your car, your house, even that your business insure. We do hope you
will enjoy reading this article and the essence of your quest for the topic
above will be met.
Insurance is a financial institution classified as a non bank financial
institution. They are important financial inter-mi diaries. It is believed to
have originated from the ancient practices of inhabitants of the valleys of
rivers Tigris and Euphrates in the present day Iraqi in about 4.000BC. History
has it that in 1800BC, the Babylonians code of Hammurabi contained provisions
which had elements of insurance in the laws that govern their commerce. But
today what we have in the industry, both locally and internationally had moved
from just an agreement between two persons into a very big industry across the
globe.
Going by definition, we learn that insurance means a situation whereby
someone protects his or herself against risk and reduce effects of
uncertainties as well as distribute loss. Other explanation to this owe it to
the situation whereby a certain amount of money when collected from someone by
an insurance company agrees to pay a compensation or render services to that
person if and whenever that person suffers the kind of loss specified in the
insurance agreement; and from the explanation, this is where an insurance
company comes into play since they are the people that will go into agreement
with the person taking any insurance policy against any of his belongings. This
industry has widely been believed as a means whereby people reduce the risk of
unforeseen circumstances. As financial intermediaries, they act as middlemen
between the surplus units and deficit units of the economy thereby sustaining
the general growth of the economy.
One may ask, how do insurance companies generate the money used in
compensating their policy holder when affected by any mishap? The answer to
this question, will lead us into talking about the various means via which the
insurance companies make their money and how their policy holders are
compensated. The truth is that, the money they collect from their policy holder
(i.e one that has an agreement with the insurance company) is invested in the
form of premiums (an extra sum of money paid in addition to the normal cost of
something. by BBC. Eng. dict) and that money is invested in Bonds, in stocks,
mortgages (i.e house) and government securities (in our subsequent article, we
will explain more of this: Bonds, stocks, mortgages and govt. securities). They
generate income for themselves and those who are in their service. They invest
their policy holder's money in better business that has short term maximum
returns on investment and from there meet their numerous needs when needed in
claims and losses. These funds themselves are invested, that not only do they
earn interest to be added to the funds, but they also benefit the government,
public authorities, and industries whose securities the investment are spread,
because of the investment policy of the insurer (we will explain later), their
reserve funds are not left idle butt are used productively.
Another way via which the insurance companies compensate those who are in
their service is that the contribution of many is used to compensate the few
among them who were affected by the misfortune insured against. So the loss of
few people is share by many.
We hope that to this extend, you must have understood the above explanation
about insurance company. Now the next thing we will be considering is the
functions of the insurance companies.
Amongst other functions, the main function of the insurance company is risk
bearing, the financial losses of individuals are judiciously distributed among
many people, for example, in the case of fire, the policy holder in fire
insurance pays a premium into a common pool, out of which those who suffer loss
are compensated.
FUNCTIONS INCLUDE
1. The insurance industry encourages thrift (i.e money conservation)
especially via it's life policies which provide funds for family, welfare and
old age provisions. It provides employment opportunity for those that have the
interest of working with the industry.
The insurance companies works hand in hand with commerce. It owes it's
existence to commerce (i.e business in general both industrial etc) and
commerce in return owes it's strong stability to insurance, this is because it
helped in various ways to enhance the general trend in business.
Before we proceed further to other functions, let's explain this two terms:
the insurer; the insured as it will aid us in our understanding.
The insured: This is the party affecting the insurance in other words, the
individual or individuals which is taking the insurance policy. This can be
done either directly or indirectly or via an agent or broker.
The insurer: This is the party providing the protection to cover by the
policy. The insurer covers every other terms which includes the underwriter who
is a senior official of an insurance company whose business lies in undertaking
new business for the company.
The insurance company has a contract which promises to pay compensation at
a future date for a consideration known as premium (i.e. the money paid by the
insured to the insurer for the insurance cover provided in the policy). Like
the way we have it in other contracts, i.e having it that contracts is based on
the principles of offer and acceptance, consideration and capacity to contract.
These contract, especially in insurance involves two parties i.e. the insurer
and the insured.
FUNCTIONS 2
Insurer, by reason of their principal function accumulate large funds which
they hold as custodians and out of which claims and losses are met. Like in
some countries, their insurers operate in many parts of the world and earn vast
sums in overseas market in terms of underwriting profit and investment income.
This tells us that insurance forms a considerable part of that country's
invisible exports.
As we continue in our functions, let's see the role of the insured and the
insurer.
ROLES OF THE INSURED:
In insurance, when the proposer becomes insured the party effecting an
insurance is known as the proposer throughout the negotiations, and until the
contract is in full force. The insurer plays a vital role in making this
aforementioned contract to come into force, knowing that in insurance contract,
just like we said before is base on the principle of offer and acceptance,
consideration and capacity to contract, the contracts are always evidenced in
writing which is made up of various forms to be filled and signed. If the
insured does not accept the insurance offer and giving meticulous consideration
to that, there can hardly be capacity to contract i.e the insurance contract
can never be. So, from this, we now learn that this two parties (i.e the
insurer and the insured) must be involved before an insurance contract can
becomes a policy.
ROLES OF THE INSURER
Here we are considering the roles of the insurer as a subsidiary functions
of insurance; this is because in general sense (they have a very wide range of
function), the insurer is the one providing the necessary insurance services,
benefits to the insured, should any mishap, depending on the insurance policy
undertaken. The insurer helps also in loss-prevention in the following ways:
We know that the extend to which loss prevention is seen, is mostly on
property. An individual or a population can suffer great loss materially, if it
were not for the intervention of loss prevention scheme by insurance companies
to their policy holders.
The insurer also assists in boasting business venture: Many large -scale
enterprise today can make their business in good faith, having transferred all
their risk to the insurance company, in other words. The insurance companies
help to maintain and to stabilize the atmosphere of the present day large-scale
business and organizations.
Many questions had risen by on onlookers, as on how the policy holder can
be compesated, should there be any mishap on the policy covered. It is better
for us to note that the insurance company, when a loss is incurred to the
policy holder can make for his or her loss, but that can only compensate him
and make him return to his normal financial position before the occurrence of
the incidence and not to profit him from the misfortune. This is generally
because, no amount of financial compensation can pay adequately for the life
and health of persons, so life and personal accidents are regarded as benefit
policies. So let there be no misconception on this fact when mishap occurs,
where the public is looking for the victim to be given everything lost, and
having a meager compensation given to him or her. So let's not distrust
insurance companies in this area, knowing that it's only the restoration to the
exact position before the loss that is provided.
Now, as we have gone so far in understanding the functions of the insurance
companies, the roles of the insured and the insurer, we will be proceeding
forward to look at the various ways via which one can benefit from being
insured in all spheres of life. For those who against all odds, accept
insurance policy adequately, benefits, awaits them in areas like
1. pecuniary insurance
2. personal insurance
3. property insurance
4. liability insurance
We will take our time to give you enough explanation in all the
sub-sections of these areas that will be of help to you.
1. PECUNIARY INSURANCE: This has to do with money or relating to something
of such nature. This insurance policy benefits mostly company owners,
directors, managers e.t.c This insurance policy provides cover to the employer
against the loss of money unintentionally, or in a situation where an employee
defrauds his or her employer on certain amount of money placed under his or her
custody or in things relating to other occurrence/loss. Other policies under
pecuniary insurance are; fidelity guarantee (known also as surety ship), legal
expenses, credit insurance and business interruption insurance. All of these
have their various function which in one way or the other relates to pecuniary.
Like earlier stated, pecuniary insurance provides cover for C.E.O., M.D'S etc
in case of loss of money either by intent or accident placed under the care of
their employee or any officer of higher responsibility. These type of insurance
cover, which their employee has will help to compensate them (i.e the
employer's) and also ease the employee the fear and tension which the mishap
might generate for him or her. It is therefore advisable you consider this policy
very well as an MD, C.E.O. etc, especially with the assistance of your
insurance broker so as to adequately know, and be directed properly on how to
go about it.
2. PERSONAL INSURANCE
This involves all classes of life assurance and also accident policies.
There are other types of person insurance, and the purpose of each is to meet
the different need of individuals in their aim to provide for the future either
for themselves or for their dependents. Other sub-divisions of personal
insurance are:
i. Life assurance
ii. Personal accident and sickness insurance,
iii. Permanent health insurance,
iv. Social security
These sub-divisions has various similarities which come out at the end to
meet the same aim, like in life assurance, personal accident and sickness
insurance, this policy ensures that the policy holder when befallen by any
misfortune, which resulted into permanent disability or death will still be
able to fend for his or herself and also for his or her dependants in the case
of death.
3. PROPERTY INSURANCE
Property insurance policy involves insurance cover for property should any
risk of damage or loss by fire, accident, burglary or other risks that may
occur. Under this, there are other sub-divisions which include:
i. Motor Insurance
ii. Marine Insurance
iii. Fire Insurance
iv. Burglary Insurance
v. Special peril Insurance
vi. All risk Insurance
In all these sub-divisions of property insurance, respective insurance
cover is given to them all should there be any damage or loss relating to the
type of policy the holder has.
4. LIABILITY INSURANCE
This provides cover for the insured against his legal liability to others.
This can arise via negligence of the insured in failing to act in a reasonable
manner. Such manners like crossing the road without properly looking on both
side of the road which might result in accident. This may also arise via the
insured's unlawful disturbance of another person in the enjoyment of his or
property (i.e constituting a nuisance to them) or via the insured's trespass
which is an unlawful act committed with force or violent on another person's
property. Liability insurance is also sub-divided into employer's liability to
his employee and public liability by the insured. The two sub-divisions of
liability insurance owe their explanation to their respective liabilities, and
since liability generally arises from lawsuits, liability policy covers only
claims which the insured becomes legally obligated to.
We should also bear in mind that no insurance policy can prevent theft, fire,
or other misfortune or the creation of legal liability, but can provide
financial assistance in such situations. It does not also protect for example,
the material property which is the subject matter of the insurance, but the
financial interest of the insurer. This mean that the insurer can only get a
financial compensation when any mishap happens to any thing insured against and
not having the property restored back in case of fire or collapse (for
building).
CONCLUSION
In all, we do hope that all these explanation will give you a better
insight towards getting what you want on the good step to take while taking
your insurance policy. But, always make sure that you don't do anything without
first of all consulting your insurance broker ( who will take more time to tell
you one-on-one the policy that will be suitable for you) before going to any
insurance company knowing already that the cost of insurance is less than what
would be the cost of insurance because the cost of insurance to industrialist
for e.g is passed on to consumers along with other product cost and the
consumers benefits from the existence of insurance via reduced prices. So make
sure you get insured today. Till I see you again. Thank you
