Insurance – general info

InsuranceInsurance is basically a means where an individual or business entity can transfer their risk for a loss (generally financial in some way) to an insurer for the cost of a premium paid. Simply put, if one owns a car or home, there is a potential to lose it through theft, fire, and other means. The insurance company will determine how likely that risk is, and the cost that would need to be paid to the purchaser of insurance, and set the premium to be paid in such a way that they expect to make money overall. The owner of the house, car, etc. will then decide to pay the premium, and if a loss occurs, can expect a certain specified reimbursement in exchange for having paid the premiums.

In practice, insurance is infinitely more complex than this simple illustration. Many things are insurable, including one’s life, health, potential income, and many other personal aspects. Virtually all property is insurable (though for very high premiums and with very limited returns in the case of riskier propositions). Many intangibles are also insurable, from the goodwill a business expects to maintain to other aspects that can be expected to affect potential income.

Insurers must statistically examine all of the relevant issues that may pertain to the possibility of loss. Some of these are predictable, such as a person’s age eventually causing their death at some point, while some are completely uncertain, such as catastrophic events such as earthquakes. Other risks include fire, theft, illness, acts of war, accident, and many other kinds of variables.

Sometimes the object is so valuable (as in works of art, or an athlete’s expectation of income, etc) or so at-risk (such as a home on the beach in a hurricane-prone area) that only specialized carriers will insure them, and of course necessitate higher premiums because the insurer is carrying much more risk.

Insurance is a widely varied topic, involving complicated calculations for some aspects, and not easily generalized above a basic level.