What is insurance? This might be a question you might find yourself asking when you are confronted with the necessity and wisdom of taking up an insurance policy cover for yourself and members of your household. You must understand what insurance is, because it is by many nations’ laws that you have some form of basic insurance cover in place, while other types of insurance covers might be optional. For instance, it is required by laws the world over that you have auto insurance when driving on the roads, but having a life or medical insurance is optional. How then will you be able to avail yourself of the benefits of insurance if you don’t know what insurance is?
What is insurance?
In the most simplified terms, insurance could be explained to mean a situation whereby a business organization undertakes to bear the risks of loss associated with the death, illness, property damage, and business disasters of an individual or company who in turn pays an agreed amount of money periodically to the organization bearing the risks, with the understanding that the organization will compensate the individual if the losses feared eventually occur. Or in other words, it is an arrangement where a financial company agrees to compensate an individual or company for any life losses or property damages they suffer when some eventuality happens, and the individual then pays an agreed sum periodically to the company in order to commit them to the agreement. The formal agreement between you and the insurance company to this effect is called the insurance policy, the periodic amounts you pay to them is called insurance premium, and you are the policy holder or the insured.
Classes of insurance
Because of the fact that people face different kinds of risks and suffer different kinds of losses every day, insurance companies have categorized these risks and losses into various groups and provide customized protection for them. Some of these risks and losses happen when motor vehicles collide and the vehicles get damaged and people die; when a house or business premises is razed down by fire; when people fall ill and hospitalized, or die; when accidents associated to jobs and workplaces occur; when natural disasters occur; and so one. These risks and losses are then divided into several loss categories like motor or auto insurance, medical/health insurance, property insurance, travel insurance, fire insurance, marine insurance, business insurance, life insurance or assurance, among others.
Now, there are various sub-groups or derivatives of insurance classes deriving from these major ones, and they are often called insurance products or plans. For instance, under life insurance/assurance, there are plans or products like whole life insurance, term life insurance, endowment plans and others; and under motor or auto insurance, there are plans like third-party cover, comprehensive cover, and others.
Insurance in other countries
It must be noted that while the concept of insurance is basically the same all over the world, the applications might vary somewhat because of the national needs and laws of each country or nation. There are some insurance policy products or plans that might operate in the U.S and not be required in Tanzania, for instance, there is disability insurance under health and medical insurance in the U.S, but not available under the health and medical insurance of some other countries. Also, the names and terms given to insurance policies may differ from country to country while still performing the same or similar coverage.