FinanceDogma – Finance, loans, creditcard and mortgages

May 4, 2009

What is Insurance?

Filed under: insurance — Tags: , — admin @ 10:36 pm

Insurance is a way of hedging our bets against an uncertain future. Since we can’t predict what’s going to happen to us or to our property, we buy insurance so we can be compensated for the results of a major or minor life event. Money comes from a pool of money contributed by everyone who holds individual policies. In other words, risks are pooled, and each policyholder’s contribution to the pool of money depends on whether that person is a bigger risk for that particular event (in which case he would pay more) or whether he is a lesser risk (in which case he would pay less).

There are dozens of types of insurance a person can buy, and in the United States, the policies and rules for insurance change from state to state. In other words, Pennsylvania health insurance might be very different from Georgia health insurance in terms of costs and coverage. But health insurance isn’t the only type of insurance. Here are some others: life insurance, accident insurance, homeowner’s insurance, renter’s insurance, car insurance, and travel insurance.

In much the same way that Pennsylvania health insurance is different from Georgia health insurance, so are the different types of insurance different. For example, if you buy travel insurance for a vacation you have planned, that insurance has a short time frame, and costs little in terms of dollar amount. But homeowner’s insurance is necessary for as long as you own the home, and is fairly major budget item for most.
People who determine how much people in different risk categories pay for insurance are called actuaries. They are experts in financial risk probability, and insurance companies employ them to help them best manage risk and charge enough in premiums to cover losses and still profit.

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.

Powered by WordPress