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. The members of insurance companies can get benefits also by the given criteria of the insurancecompany 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
- 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.
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.