What is Insurance and what it covers?

 What Insurance?

Insurance is a contract between an individual or entity (the policyholder) and an insurance company in which the insurer (the insurance company) agrees to provide financial protection or reimbursement ( or compensation) for specified events or circumstances in exchange for the payment of premiums. The purpose of insurance is to reduce potential financial losses that may arise due to unexpected events or risks. The policyholder pays premiums, either monthly, quarterly, or annually, to the insurance company. In return, the insurer agrees to compensate the policyholder or beneficiary if a covered loss or occurrence occurs. Insurance companies have terms and conditions for the policy plan and it has written on the policy copy.

Insurance can cover a wide range of areas, including health, life, property, automobile, liability, business, and more. Here are a few common types of insurance:

1. Health Insurance: Provides coverage for medical expenses, hospitalization, and treatments.

2. Life Insurance: Offers financial protection to the beneficiary in the event of the policyholder's death, paying out a specified amount.

3. Motor Insurance: Protects against financial loss due to vehicle accidents or theft, covering damages to the insured vehicle and liability for injuries or damage caused to others.

4. Property Insurance: Covers damage or loss to properties such as homes, buildings, or personal belongings caused by covered perils like fire, theft, or natural disasters.

5. Liability Insurance: Provides coverage for legal liabilities resulting from injuries, accidents, or damage caused by the policyholder.

How Insurance Company Functions

• Insurance companies collect money by pooling funds from many policyholders to pay out claims to those who experience a loss covered by their policies. Policyholders pay premiums to the insurance company, which invests some of the funds and holds reserves to pay future claims.                                                                                   
• It is like a company collecting a small amount of premium from 1000 people; among them, they have to pay claims to one or two policyholders, which means many people share the loss of one person without any burden.

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