INSURANCE GENERAL KNOWLEDGE

Presented BY ASIM NAZIR

Deputy ManagerAsia Insurance Company Limited

What is Insurance?“Promise of reimbursement in case of loss; paid to people or companies so concerned about hazards that they have made prepayments to an insurance company”.

A more technical definition can be “Insurance is a financial arrangement whereby losses suffered by a few are met from the funds accumulated through small contributions made by many whom are exposed to similar risks”.

What is Insurance Policy?

What is Insurance Policy?

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

In exchange for payment of a specified sum of money, called the "premium," the insurance company agrees to pay for certain types of loss or damage as specified by the contract. When a loss occurs which meets all of the requirements described by the terms of an insurance policy, the loss is said to be "covered" by that policy. The term insurance policy refers specifically to the written contract. You probably have other documents that may or may not offer you additional rights, including your application, any correspondence from the insurer, summary plan descriptions (for disability and medical insurance), and your declarations page (often shortened to “dec” page).

How does an Insurance Policy “Protect” me?

How does an Insurance Policy “Protect” me?

Insurance policies offer protection against economic loss, that is, loss or damage which can be measured in purely financial terms and compensated by money. For example, an insurance policy can pay for the cost to repair or replace a damaged automobile or to rebuild a building damaged by fire, for the cost of medical treatment for an injury or illness or for the lost income of a person who dies or is unable to work. The purpose is to place the injured party, as nearly as possible, in the same financial position as if the loss had not occurred.

It is important to understand this limitation of insurance, since there are many types of losses which can not be compensated by money. For example, insurance can not replace a life or take away the emotional injury or pain which often accompanies an accident or serious illness or compensate for loss of the "sentimental" value of an item of property. When you buy homeowners property insurance, for example, you are insuring only the economic value of the home, i.e., the cost to repair or rebuild it.