HOW INSURANCE WORKS?
Insurance is a risk covering plan. The insurance company
transfers the risk to the insurer. Insurance companies cover the losses of the
insurer.
company given packages.
In the Group insurance of any business or any other type of
insurance in which one to many members shared the insured amount by the
criteria that was already mentioned to them. All the members also pay the
premium that was measured to be fair to them.
Now, we explain it how the insurance policy works.
- There are houses in a town: $1000
- Value of each of house is: $40,000
- Houses burning in each year: $5
- Total one year loss due to burning:$200,000
- Regular payment of each house owner: $300
All 1000 house owners are unprotected with a common risk,
e.g burning of house
Example
- Total number of persons: 5000
- Age with physical healthy condition: 50 years
- Total number of person’s dying in the each year: 50
- Economic value of loss suffered by family of each dying person: 100,000
- Total annual loss due to death: $5, 000, 000
- Regular payment of each person: $1, 200
- All 5, 000 persons are unprotected with a common risk e.g death
Benefit of insurance policies
Risk Transfer to recovering
By purchasing insurance the risk is transferred into the
recovering of risk. Anyone, who purchases the insurance policy who can get
advantages by using his / her insurance policy.
Income level
By using the insurance policy big loses can be recovered by
the insurer. If a person who has $600,000 business and his all of the business
burns due do natural then the company will pay the all of his loss if he had
not purchased the insurance then there was a big loss for his business. There
was no another source to recover all of the loss. If that person pays some of
his income to the insurance company then it is helpful for the business in this
critical situation.
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