How an Insurance Policy Works

Insurance is synonymous to a lot of people sharing risks of losses expected from a supposed accident. Here, the costs of the losses will be borne by all the insurers.

For example, if Mr. Adam buys a new car and wishes to insure the vehicle against any expected accidents. He will buy an insurance policy from an insurance company through an insurance agent or insurance broker by paying a specific amount of money, called premium, to the insurance company.

The moment Mr. Adam pay the premium, the insurer (i.e. the insurance company) issue an insurance policy, or contract paper, to him. In this policy, the insurer analyses how it will pay for all or part of the damages/losses that may occur on Mr. Adam’s car.

However, just as Mr. Adam is able to buy an insurance policy and is paying to his insurer, a lot of other people in thousands are also doing the same thing. Any one of these people who are insured by the insurer is referred to as insured. Normally, most of these people will never have any form of accidents and hence there will be no need for the insurer to pay them any form of compensation.

If Mr. Adam and a very few other people has any form of accidents/losses, the insurer will pay them based on their policy.

It should be noted that the entire premiums paid by these thousands of insured is so much more than the compensations to the damages/losses incurred by some few insured. Hence, the huge left-over money (from the premiums collected after paying the compensations) is utilized by the insurer as follows:

1. Some are kept as a cash reservoir.

2. Some are used as investments for more profit.

3. Some are used as operating expenses in form of rent, supplies, salaries, staff welfare etc.

4. Some are lent out to banks as fixed deposits for more profit etc. etc.

Apart from the vehicle insurance taken by Mr. Adam on his new vehicle, he can also decide to insure himself. This one is extremely different because it involves a human life and is thus termed Life Insurance or Assurance.

Life insurance (or assurance) is the insurance against against certainty or something that is certain to happen such as death, rather than something that might happen such as loss of or damage to property.

The issue of life insurance is a paramount one because it concerns the security of human life and business. Life insurance offers real protection for your business and it also provides some sot of motivation for any skilled employees who decides to to join your organization.

Life insurance insures the life of the policy holder and pays a benefit to the beneficiary. This beneficiary can be your business in the case of a key employee, partner, or co-owner. In some cases, the beneficiary may be one’s next of kin or a near or distant relation. The beneficiary is not limited to one person; it depends on the policy holder.

Life insurance policies exist in three forms:

• Whole life insurance

• Term Insurance

• Endowment insurance

Whole Life Insurance

In Whole Life Insurance (or Whole Assurance), the insurance company pays an agreed sum of money (i.e. sum assured) upon the death of the person whose life is insured. As against the logic of term life insurance, Whole Life Insurance is valid and it continues in existence as long as the premiums of the policy holders are paid.

When a person express his wish in taking a Whole Life Insurance, the insurer will look at the person’s current age and health status and use this data to reviews longevity charts which predict the person’s life duration/life-span. The insurer then present a monthly/quarterly/bi-annual/annual level premium. This premium to be paid depends on a person’s present age: the younger the person the higher the premium and the older the person the lower the premium. However, the extreme high premium being paid by a younger person will reduce gradually relatively with age over the course of many years.

In case you are planning a life insurance, the insurer is in the best position to advise you on the type you should take. Whole life insurance exists in three varieties, as follow: variable life, universal life, and variable-universal life; and these are very good options for your employees to consider or in your personal financial plan.

Term Insurance

In Term Insurance, the life of the policy-holder is insured for a specific period of time and if the person dies within the period the insurance company pays the beneficiary. Otherwise, if the policy-holder lives longer than the period of time stated in the policy, the policy is no longer valid. In a simple word, if death does not occur within stipulated period, the policy-holder receives nothing.

For example, Mr. Adam takes a life policy for a period of not later than the age of 60. If Mr. Adam dies within the age of less than 60 years, the insurance company will pay the sum assured. If Mr. Adam’s death does not occur within the stated period in the life policy (i.e. Mr. Adam lives up to 61 years and above), the insurance company pays nothing no matter the premiums paid over the term of the policy.

Term assurance will pay the policy holder only if death occurs during the “term” of the policy, which can be up to 30 years. Beyond the “term”, the policy is null and void (i.e. worthless). Term life insurance policies are basically of two types:

o Level term: In this one, the death benefit remains constant throughout the duration of the policy.

o Decreasing term: Here, the death benefit decreases as the course of the policy’s term progresses.

It should be note that Term Life Insurance can be used in a debtor-creditor scenario. A creditor may decide to insure the life of his debtor for a period over which the debt repayment is expected to be completed, so that if the debtor dies within this period, the creditor (being the policy-holder) gets paid by the insurance company for the sum assured).

Endowment Life Insurance

In Endowment Life Insurance, the life of the policy holder is insured for a specific period of time (say, 30 years) and if the person insured is still alive after the policy has timed out, the insurance company pays the policy-holder the sum assured. However, if the person assured dies within the “time specified” the insurance company pays the beneficiary.

For example, Mr. Adam took an Endowment Life Insurance for 35 years when he was 25 years of age. If Mr. Adam is lucky to attain the age of 60 (i.e. 25 + 35), the insurance company will pay the policy-holder (i.e. whoever is paying the premium, probably Mr. Adam if he is the one paying the premium) the sum assured. However, if Mr. Adam dies at the age of 59 years before completing the assured time of 35 years, his sum assured will be paid to his beneficiary (i.e. policy-holder). In case of death, the sum assured is paid at the age which Mr. Adam dies.

Finding the Best Life Insurance Premium

When the majority of people begin looking for life insurance, the premium they’re quoted is often the one they end up paying. What most people don’t realize is that it’s possible to shop around for a better deal and it may even be possible to negotiate for reduced premiums.

If you’re thinking of applying for life insurance, looking for a policy or maybe wanting to change your existing policy then it’s best to begin forearmed with a little knowledge of what you’re seeking. Obviously you’ll want to be sure you’re paying the most competitive life insurance premium available for the type of policy you’ve chosen.

When people talk about life insurance, most people groan as they think finding and taking out insurance is a lot of hassle or that it might be too expensive. But when the inevitable happens, as it ultimately will, do you want your loved ones to be financially secure or struggle?

Finding the Best Life Insurance

Where do you look if you are in the market for insurance? Here are a few good places to look, but be advised the list is not complete and there are lots of places where you can find insurance. Don’t be fobbed off with any type of insurance either, and you want the best life insurance premium too.

Take the time to speak to a professional adviser about your options. They’re likely to know more about the intricacies of various policies and will be able to help you find the right one for you.

Shopping for the Best Life Insurance Premium

An adviser may also be able to give you some practical tips on ways to reduce your premium. You may consider what exclusions you need or perhaps you might consider various lifestyle factors that can determine how much you pay on your current premiums.

You should also carefully consider the payout figure you’re insured for. If you’re insured for a very large sum of money, this can often increase the amount you pay on premiums. Be realistic about the amount your beneficiaries will need to survive financially if something happened to you and consider reducing the payout figure if necessary. This can lower your premium payments.

Lifestyle and Career Choices

While the right type of insurance is important and best fits your circumstances, factors like age, smoking, and your occupation all come into consideration. Hazardous occupations may incur a steeper premium rate. Likewise, smokers may find themselves paying higher premiums.

Some insurance companies may penalize people who are a little overweight, as obesity can often lead to an increase in health risks, which increases your premiums in turn. In order to reduce your premiums, consider working on raising your fitness level a little. Not only will you feel healthier, but you’ll lose a little weight at the same time and lower your life insurance premium.

Another good tactic is to ask for quotes from several different companies selling life insurance. You are not obliged to take out their policies if you do not want to, but it can help you to see what cover is available and you’ll also be able to accurately compare the life insurance premiums available to you.

What Influences Your Car Insurance Premiums?

It is a given fact that knowing the details is certainly advantageous for individuals who are entering into different types of transactions. This is also the case when it comes to car insurance. Since the amount of premiums significantly affect the cash flows of policyholders, identifying the factors that affect car insurance premiums is absolutely useful in decision making.

Car insurance premiums are affected by inherent characteristics that policyholders cannot totally adjust according to their preferences. This includes the age, gender and marital status of the policyholders. Insurance companies maintain varying premium differentials that are appropriate to these groups according to various studies that were conducted. As per the age factor, drivers who are younger than twenty five years old and above sixty years old are revealed to be more susceptible to vehicular accidents. As a result, insurance premium rates for individuals in these age groups are typically higher.

When it comes to gender, women are considered to be statistically careful drivers compared to men. This is the reason why female policyholders shell out less premium expense compared to the male ones. Individuals who are married also are given lower premium quotes as compared to single individuals.

There are also factors that are entirely controllable and can be the result of the actions and decisions of the policyholders. This includes the type of vehicle, driving style and record, credit rating, professional responsibilities, profession, mileage counts and car safety features.

Insurance companies tend to increase the premium rates for high-end automobiles that are categorized as high-performance, sports cars, rear-engine models and intermediate performance. It can be formulated that more expensive cars commands higher insurance premiums. This is due to the fact that these car types have more expensive spare parts and is more susceptible to theft.

Driving styles and record also play an important role in car insurance premiums. Insurance companies investigate and examine the driving profiles of their policyholders in order to correspond with the insurance premium offers. People who have traffic violations and accidents in their driving records tend to have higher premiums. Credit rating also has an impact to the amount of car insurance premiums. Insurance assumes that individuals who do not possess good credit rating are financially negligent and this can be manifested in their driving style as well.

The profession of the policyholder also has an effect in the insurance premium rate. Statistically, there has been an observed correlation between risk and occupation of policyholders. If the occupation requires long distance travel or travel in accident-prone locations, the premium rate charges are higher. Premium rates are cheaper for policyholders who work in the office or urban institutions.

Low annual miles driven by the policyholders also reduce the probability of being in a vehicular collision which in turn, results to lower premiums. Vehicles which are intended for business purposes also have lower insurance rates as compared to vehicles that are operated for commuting purposes.

Lastly, car features can also have influence in the rate of the insurance premiums. A vehicle which has safety features and theft prevention gadgets installed in it also cuts the insurance premiums. These features include airbags, anti-lock brakes, chassis quality, tracking devices and burglar alarms.