WHY INSURE AND
THE PRINCIPLES OF INSURANCE
Insurance is a way of financially protecting ourselves, or others, for the payment of money if a loss occurs. It removes uncertainty by transferring a known, or unknown, financial consequences to someone else – usually an insurance company.
This security comes by paying an insurance company an agreed sum of money, called a Premium.
Most types of insurance are optional, so why take it out?
You could put the money in a bank instead of paying into an insurance company. But, could you save enough? Insurance covers risks you can’t prepare for so you don’t have to save huge amounts of money.
But how can insurers provide compensation when so many losses occur every day, e.g. claims for death, disabilities, medical procedures and traumatic events like cancer, heart attack, or a stroke.
With lots of similar risks, insurers can predict the number of losses they might have. They won’t know exactly, but experience and statistical data will give them a pretty good idea. In fact, only a small proportion of policyholders will actually suffer a loss in any given year.
An insurance company offers its protection by grouping together people who all feel exposed to the same risk.
By collecting an amount of money, a premium, from each person, the insurer can accumulate a fund called an Insurance Pool, out of which losses can be paid.
Finally, there are two Principles of Insurance for which you must know about:
You must answer all the questions in the Proposal fully, as well as truthfully. If you aren’t sure, it is very important that you ask what the question really means, or how much detail is required.
By misleading, or withholding detail that an insurer may want to know, they can cancel your policy and/or refuse to pay you the compensation you are insuring.