An Introduction to

Insurance
What is Insurance?
 Insurance is a means of guaranteeing you
financial protection against various risks.
 In exchange for a relatively small payment, you
gain protection against a potentially large loss.
 Some examples of a large loss would include
your house burning down or spending weeks in
the hospital recovering from an automobile
accident.
Important Insurance
Related Terms
 We are going to discuss some important
terms related to insurance. These terms
include: insurance policy, premium,
coverage limit, and deductible.
 We will also examine specific types of
insurance including: auto, homeowners,
property, life, health, and disability.
What is an Insurance
Policy
 This is a written contract detailing what
an insurance company will cover, how
much it will pay, and how much you will
pay.
What is a premium?

 This is the amount of money that you pay

for an insurance policy.
 Premiums can be paid monthly, quarterly,
semi-annually, or annually.
 The premium is based on the type and
amount of coverage you choose and
varies from one insurance company to
another.
Factors that affect
insurance premiums
 These include:
 Your age
 Marital status
 Whether you live in an urban or rural
area
 Your credit history
 Also, each special type of insurance is
going to consider other factors.
Coverage Limit
 This is the maximum amount the insurance
company will pay if you file a claim.
 It is important that you select an appropriate
coverage limit because any amount over your
coverage limit becomes your responsibility.
 An example of this would be if you were
insured with a coverage limit of $50,000 and a
claim against you was for $60,000. You would
be responsible for the additional $10,000.
Deductible
 This is the amount of a loss you must pay out
of your own pocket before the insurance
company will step in and pay the rest.
 An example of this would be if you were in an
auto accident and it caused $1000 worth of
damage and your deductible was $500.00.
After you paid the initial $500.00, the insurance
company would then pay the remainder of the
bill.
 Fixed amount or percentage of an insurance
claim that is the responsibility of the insured,
and which the insurance company will
deduct from the claim payment. Sometimes
deductibles are voluntary (to qualify for a
lower premium rate) but usually they are
imposed by the insurer to avoid paying a
large number of small claims.
Auto Insurance
 This is insurance that protects your financial
interests in the event that you are involved in an
automobile accident.
 It is extremely important to have automobile
insurance because the damage done to your or
another’s vehicle can be extremely expensive to
repair.
 Also, if you hurt someone else while driving, there’s
virtually no limit to what they can sue you for.
Homeowners/Property
Insurance
 This is insurance that protects you
financially if your house is damaged.
 Also, this type of insurance protects your
possessions that are located within your
home.
 Renters insurance protects your property
within a rented home or apartment.
Life Insurance
 This type of insurance provides financial
support for the people who depend on you in
the event of your untimely death.
 There are different types of life insurance
policies. Some of these are designed to just
provide insurance benefits (term), while others
(whole life, variable life, universal life, etc…)
are designed to serve as insurance and a type
of investment.
Health Insurance

 This type of insurance pays medical bills

when you or your family becomes sick or
injured.
 You can purchase an individual health
insurance policy for yourself and your
family, but its usually much more
expensive than the coverage an
employer offers.
Disability Insurance

 This type of insurance pays you an income

when an illness or injury prevents you from
working for several weeks or even years.
 Disability insurance is often a type of
insurance that people don’t purchase.
However, according to the NAIC, people in
their 30s are three times more likely to
suffer a disability than they are to die.
 The subject-matter is life in the life insurance,
property and goods in property insurance,
liability and adventure in general insurance.
Insurable interest is essentially a pecuniary
interest, i.e., the loss caused by fire happening
of the insured risk must be capable of financial
valuation.


Insurable and Uninsurable
risk
 Eventuality for loss or damage that is (1) definable, (2)
fortuitous, (3) similar to a large number of known
exposures, and (4) pays a premium that is
commensurate with the potential loss.

 Condition or situation that fails to meet the

requirements of an insurable risk, such as where a loss
is inevitable (as the death of a patient suffering from a
terminal illness) or where the damage is gradual (as
corrosion or rusting of metals).
DEFINITION of 'Liability
Insurance'
 Any type of insurance policy that protects an individual or
business from the risk that they may be sued and held legally
liable for something such as malpractice, injury or negligence.
Liability insurance policies cover both legal costs and any legal
payouts for which the insured would be responsible if found
legally liable. Intentional damage and contractual liabilities are
typically not covered in these types of policies.


Meaning of guarantee
insurance.
 A guarantee insurance is a type of insurance
contract where the insurer agrees to indemnify
the insured for a fixed sum against losses
through fraud, dishonesty and breach of contract
by a third party. The most important feature of
this contract states that the insurer stands as a
surety against the action of a third party. The
bright examples of guarantee insurance contracts
are credit insurance and fidelity insurance.
Risk management

 Risk management is the continuing

process to identify, analyze, evaluate,
and treat loss exposures and monitor risk
control and financial resources to
mitigate the adverse effects of loss.
 The identification, analysis, assessment,
control, and avoidance, minimization, or
elimination of unacceptable risks. An
organization may use risk assumption,
risk avoidance, risk retention, risk
transfer, or any other strategy (or
combination of strategies) in proper
management of future events.
Risk may be of -

 financial risks such as cost of claims and

liability judgments
 operational risks such as labor strikes
 perimeter risks including weather or
political change
 strategic risks including management
changes or loss of reputation