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Insurance: A brief Introduction

Insurance: A brief Introduction


Our daily life is comprised of various situations, and our ability to take risks makes us aware that risks in anything we do are always present, and there is always the question of things going south. That is what comes with risks. Now, it is pre-requisite that such given risks come with a fear of a planned situation failing.  Insurance protects us from those risks.

Speaking in a financial context, let us begin with a simple definition of Insurance and go on ahead to knowing various aspects associated with it.

Insurance – Definition and usage

As many of you are aware, Insurance in a simple definition is a contract which is often represented by a policy, in which an individual receives financial protection or reimbursement against losses from an insurance company.  It is also a form of risk management primarily used to protect against an uncertain loss.

Now, the insurance policies provided by the insurance companies are used to protect an individual against the risk of big or small financial losses which can simply arise in the following ways:

  • Damage to the insured
  • Damage to the property of the insured.
  • Liability for the damages/injury caused to a third party.

Generally in this contract of insurance, there are mainly two parties involved: the Insurer and the insured.

Who is an Insurer?

An Insurer is an individual or a company that underwrites an insurance risk. Underwriting by the insurer means that the insurer undertakes the responsibility to pay compensation on specific losses, liabilities or damages occurred by or inflicted upon another individual, In this case- the Insured.

Who is an Insured?

A person who obtains insurance or is covered by insurance under an insurance policy on his or her life, health or property is an insured person. However, it is always not necessary that insurance covers only the name of the insured but extends to anyone who is insured under the policy.

Types of Insurance policies

Depending upon different types of risks in different sections of the society, there is a multitude of different insurance policies available like:

Personal insurance – which includes automobile, health, homeowners and life insurance policies

Business insurance - This includes a special type of insurance policy that protects against any specific types of risks faced by a particular business.

There are also insurance policies made available to the individual to protect them from very specific risks such as ransom and kidnap, medical malpractice and errors and omissions insurance.  

How Insurance works

Before choosing a policy, it is very important to understand how insurance works. To better understand it, we look at the three most important components of insurance policies:

  • Premium – A premium is defined as the price of the insurance policy as a monthly cost. The premium of a policy is determined by the insurer based on the creditworthiness of the potential insured. There may be different premiums for the same policy depending on different insurers.
  • Policy Limit – a Policy limit is the maximum amount an insurer (insurance company) will pay under a policy for a covered loss. Higher limits carry higher premiums.
  • Deductible - The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy.

To know about whether a particular policy is the best suited for your needs, Click here and read live experiences posted by people all over the world and decide on how to proceed.

Where is your Insurance premium utilized?

According to the Insurance Bureau of Canada, 55 cents of every dollar collected as part of your premium is used for paying insurance claims. Another 21 cents of every dollar are directed towards operating costs of the finance companies, such as the 24-hour customer service lines, record keeping, website maintenance, and another 16 cents is paid to various governments in the form of taxes. Insurance companies only earn $0.08 out of every $1 in profit.


In Conclusion, Insurance is all about risk-sharing and is typically a form of security which is based on cooperation between the insurer and the insured. Insurance distributes the risk of a catastrophe among a group of people and provides low-cost financial security against the unforeseen. You need to be informed and insured of the pros and cons of Insurance before you sign up for any and does just that! We are only committed to solving customer queries on specific listed matters of finance on our website. Join our family today and be assured of the best!