WHAT IS INSURANCE?

An insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the "insured" or the "policyholder."

In exchange for payment of a specified sum of money, called the "premium," the insurance company agrees to pay the "benefic iary" (or for some benefits, the "owner") of the policy a fixed or otherwise determinable amount of money, if circumstances that are set out in the policy, occur.

Another way of looking at insurance is to consider that it is a group of people getting together and paying on a regular basis into a 'pooled' account. If any of them need to claim off the insurance because of some personal calamity, the money is there to enable this to happen. In that way, insurance serves as a risk transfer mechanism by which people or businesses can shift some of their uncertainties or risks to the insurance companies. The insurance companies charge a fee, known as a premium, for accepting these risks, and in return, agree to pay for the financial losses that the policyholder may suffer.

BASIC INSURANCE DEFINITIONS

Some of the basic insurance definitions are discussed here:

Application – The first questionnaire an insurance applicant fills out when he applies for insurance. This form will ask for information about the applicant and the subject to be insured (i.e., the applicant’s car, houses, personal property, etc.).

Cancellation – The termination of insurance coverage during the policy period. This is further divided into three types of cancellations:

1. Flat Cancellation – The cancellation of a policy as of its effective date, without any premium charge.
2. Pro-rata Cancellation – When the policy is terminated at midterm by the insurance company, the earned premium is calculated only for the period for which the coverage was provided.
3. Short-rate Cancellation – When the policy is terminated prior to the expiration date at the policyholder’s request, then the earned premiums charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

Decline – This refers to a situation when the company refuses to accept the request for insurance coverage.

Effective Date – This is the date on which the insurance policy begins.

Expiration Date – This is the date on which the insurance policy ends.

Insurance Agent – A person authorized by, and acting on behalf of the insurer, to transact all classes of insurance that the insurance company is licensed to sell

WHO NEEDS INSURANCE?

Insurance is everyone’s need. Anyone who owns something or desires personal protection needs insurance. From individuals to businesses, insurance is a way to protect all of us from financial loss, disaster, and bad investment.

Everyone should buy insurance based on his/her unique personal needs. The market offers a wide range of insurance products, including property, liability, health, disability, crisis, savings, income protection and investment, to match the changing needs of people or businesses at different stages of their lives.

Certain insurance contracts are also made compulsory by legislation. For example, Oregon law states that tavern and liquor establishments must carry $300,000 of liquor liability insurance or maintain a bond not less than $300,000 with a corporate surety authorized to conduct business in Oregon. Many states require employers to purchase workers’ compensation to protect employees injured on the job.