How Insurance Works
Are you wondering what is insurance and how does it work? We have the answers for you! Insurance is something you purchase to protect yourself from unexpected losses you can’t afford: the accident you hope you never get into, the fire you pray never destroys your home, the hailstorm you know sooner or later is bound to batter your roof, the lawsuit that threatens to wipe out your savings.
Here is some information to help you understand how property and casualty insurance works:
Your insurance policy is a legal contract
An insurance policy is a legal contract between you and your insurance company. Like all legal documents, it very clearly spells out certain conditions that you both agree to when you sign off on the paper work. You agree to pay the premium and your company agrees to cover you for certain losses. Forms may differ from company to company, but all will include what is covered and what isn’t covered by your insurance. There is a limit to the amount any insurance policy will pay for a loss and no policy covers every type of loss. If there is a potential risk that concerns you and it isn’t referred to in your policy, ask your agent or company representative if it is covered by your general policy and if special coverage is available.
Factors that impact cost
Insurance companies are like other businesses, in that the price charged is directly related to the cost of what is used in the product. If the price of car repairs, home construction or settling lawsuits rises, the cost of auto, homeowners or liability insurance must also rise.
Insurance companies have little direct control over the risk factors that affect the amount of claims they pay out. To hold down costs, it’s essential to hold down the costs of what insurance pays for. That’s why the insurance industry devotes considerable resources to supporting programs and proposals that reduce losses, prevent injuries and save lives.
Why do different insurance company charge different rates?
An insurance company sets prices partly on its own past experience with claims that are filed (for example: accidents involving certain types of drivers in certain kinds of vehicles) and on competition in the marketplace. One particular company may have a much better experience insuring a certain type of driver than the industry does as a whole.
What should I look for in an insurance company or agent?
Agents and companies are there to help you. At the most basic level, any agent or company representative should be able to answer all of your questions about insurance, provide you a thorough assessment of your insurance needs, and offer you a choice of insurance products to meet those needs. Also, any insurance agency or company should provide you with prompt, quality service in the case of a claim.
Just as important is the level of professional confidence and personal comfort you feel with the company representative or agent.
An often overlooked factor to keep in mind is that there are two kinds of insurance agents and two kinds of insurance companies. There are companies who sell insurance directly to you and there are companies who sell insurance through agents. There are also two different kinds of agents: those who represent one insurance company and those who represent more than one insurance company.
Agents offering the policies of a single insurance company through their agencies are often referred to as "captive agents." Agents offering the policies of more than one insurance company through their agencies are called "independent agents."
Source: scinsnews
