Insurance

Understanding Insurance

Life is full of uncertainties which can be detrimental when we do not have a mitigation plan in place. Insurance is an incredibly popular way to protect yourself financially from future mishaps. Insurance is a contract between two entities- the insured (customer) and the insurance provider. There are various types of insurance, and all of them have specific purposes. Common ones include property, health, or loan insurance. Every insurance contract lists terms and conditions, and failing to adhere with these can lead to the refusal of a claim. This article will break down the five main components of an insurance policy. 

  • Premium refers to the cost of your insurance, typically paid monthly. The premium amount is not fixed and is determined by several factors that are relevant to the risk level for the provider/insurer. For example, when buying health insurance, the insurer will usually have you go through medical checkups to determine your current state of fitness. If any underlying issues come up in your report, you will likely pay a higher premium. This is why buying health insurance when you are young and healthy is recommended. 


  • Policy Limit is the maximum amount an insurer would be liable to pay in case of a claim. A policy limit is set for a certain time or per claim/accident. A higher limit usually would attract a higher premium. 


  • A deductible is an amount the insured must pay before receiving a claim from their insurance company. This serves as a disincentive to prevent clients from making small claims. Imagine you had insured your car, and you have a minor accident which will cost about $350 to repair. Your deductible is $100, so you receive only $250 in this claim. 


  • Exclusions are damages/conditions where the insurer is not liable to pay the costs. They are listed in your insurance contract, and it is very important to read your contract properly to locate any exclusions or limits. This will prevent you from any unanticipated large expenses. 


  • Riders are like toppings you can add to your insurance pizza. Riders offer additional coverage but are most likely going to increase your premium. If selected carefully and to your specific situation, they can be incredibly useful for your insurance policy. Let’s assume a person who wants to buy gadget insurance. They find out that the insurance provider does not cover damages occurred outside of the country of purchase (example of an exclusion). The provider gives the option of a rider that will expand the insurance coverage worldwide. This will be worth the additional premium if the person travels abroad frequently.

 

Yatharth Garg

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