Insurance basics

Insurance not only brings peace of mind, but also provides some financial protection against emergencies and other risks in life. There can be many reasons for getting insurance, including wanting to protect your family if you die or lose your ability to earn money, or to protect your home, car or other assets in the event of theft or disaster.

The role of insurance is to manage risk. When you take out insurance, you transfer part of your financial risk to the insurance company. If you are not insured, you bear your own financial risk. Including insurance arrangements in your financial plan is very important to protect yourself, your family and personal assets, and to prevent various risks.

When you purchase insurance, you become the policyholder and possibly the insured. You pay an amount called a “premium” to the insurance company as a price for asking the insurance company to bear the risk for you. If you experience an accident that is covered by your contract, you can make a claim.

You can consider your personal insurance needs by following these key steps:

• Determine the coverage you need and shop around to choose a policy that meets your needs.
• Apply for insurance and make sure you understand the policy terms and coverage. Learn about the things to note when buying insurance.
• Pay the premium. Depending on the policy type, premiums can be paid annually, monthly or in a lump sum.
• Making a Claim – Don’t hesitate to notify your insurance company as soon as possible if you need to make a claim.

Insurance can be broadly divided into two categories: life insurance and general insurance. Life insurance pays a lump sum to the beneficiary upon the death of the insured. Life insurance can also include other elements, such as a savings component. As for general insurance, it provides protection against losses other than death, such as personal injury or damage to assets caused by an accident.

The amount of cover you need will depend on your personal circumstances. There is a cost to purchase insurance, so a policy with sufficient coverage is sufficient.

However, how much insurance coverage is enough? You must make a decision based on what you wish to insure. For general insurance, you must consider the value of the insured asset, the financial loss you will suffer if the asset is damaged, and the replacement cost of the asset.

You should also consider the possibility of loss or damage occurring and the steps, if any, taken to reduce such risk. For example, if you are planning to insure your car, you will need to consider factors such as where you park your car, how often you use it, and the safety features installed in your car.

When it comes to life insurance, you need to consider how much you will need to support your family and your personal income in the event of your death or injury and the inability to work. If you need to support your children or parents, you will need greater life insurance coverage than someone who is single and has no family burden. You also have to consider debts you have to repay, such as a personal loan or mortgage.

Before purchasing insurance, ask yourself the following questions:

• Who or what assets do you want to protect?
• What risks do you want insured against?
• How likely are the risks to arise, and can you mitigate them?
• If a risk arises, what will happen to you and your family, and how much financial loss will you suffer?
• How much does the policy cost?
• How much premium can you afford for a policy with several longer terms?

You have an insurable interest when you have a legally recognized relationship with something insured, such as a person or property, including limbs, teeth and other body parts, and even your voice. If there is no insurable interest, insurance protection will be difficult to establish and the agreement will be invalid as a matter of law.

A common example of an insurable interest is property ownership. There are many other examples, such as an employer who employs employees or a custodian of assets.

Sometimes, policyholders may terminate their relationship with the insured item while the policy is in force. If this occurs, the insurable interest will cease and coverage will automatically end. Common examples are car transfers or property transfers. If such a change occurs, the policyholder should notify the insurance company as soon as possible.

Compensation is the amount of money an insurance company pays you to compensate you for your losses. However, this amount will not exceed your financial loss, but will only be enough to restore you to the same financial position as when you suffered the loss.

As for property insurance, if the insured item has depreciated in value at the time of loss, the insurance company will only compensate based on the depreciated value, which is the so-called “loss value compensation principle”. Another way to calculate the compensation amount is to compensate according to the “reconstruction value compensation principle”, which means that the replacement value of the insured item when it is lost is used as the compensation amount, and no depreciation is required.