Why do I need insurance cover?

Before we can answer that question, we must first learn what exactly insurance is and the many reasons for insurance cover as there are different insurances for different reasons.

In economics, insurance is a form of risk management used to hedge against the risk of an uncertain loss. Insurance cover is defined as the equitable transfer of the risk to a potential loss from one entity to another in exchange for payment.

“The insurer is typically a company selling the insurance and the policy holder…”

The insurer is typically a company selling the insurance and the policy holder is the person or business buying the insurance cover policy.

The insurance rate is calculated factor used to determine the amount charged for the insurance coverage known as the “premium”.

Risk management is the practice of appraising the risk and has evolved as a specialised field. The transaction involves the insured person, business or entity assuming a guaranteed and known relatively minimal loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured person, business or entity in the case of a financial or personal loss.

“The insured person, business or entity receives a contract called the insurance policy…”

The insured person, business or entity receives a contract called the insurance policy, which contain the details, conditions and circumstances under which the insured person, business or entity will be financially compensated from the initial loss.

{ 1 comment }