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What to know about Insurance?

The word ‘insurance’ is commonly heard in the day-by-day encounters. For those of you who have some sort of property, namely a car, a house or a business the importance of insurance is obvious, and you may find this brief note rather too basic. This article aims to those who are less familiar with the word insurance, hence aims to throw a short hint.

Life, including that of a business, is not always straight forward; in reality, life is full of many encounters of accidents and risks. Accidents can happen at home, at work-place or as you travel. Damages could be due to deliberate (e.g.; terrorist, theft) or un-deliberate acts in nature. At times, the size of the damage or risk could be enormous that you would not be able to pay for the cover of the damage, or restore back to normal if it is a business or property. Take simple example: if you have your hard-earned car, you don't want to risk it or let it lost as a result of traffic accident; likewise, you would not want to see yourself bogged into a mess of heavy law-suit as a result of damage you brought upon to third-parties or passengers. You can't just ignore all these potential risks that are inherent with driving a car; therefore you need peace of mind when driving, and that is where the need for car insurance comes in.

Therefore, Insurance is a system by which the insurer (for example insurance company who provides the compensation) enters a contract of promise to pay compensation to the insured (for example a person, or company who is seeking the compensation) in the event of accidents or risks. The person or business being insured therefore has to pay a premium for this service. This is usually payable in advance to the year in which the insurance service is sought. Insurance premium is paid in the form of one-off payment or by instalment (i.e.; equal payments spread on agreed intervals during the period of the contract, e.g.; monthly or quarterly basis). Bear in mind however, when paying by instalment; the overall amount may be higher compared to the one-off payment.

The insurance companies heavily rely on existing laws and the Terms of the contract. They stick to the agreement details as shown in the insurance policy-document, when considering the compensation when the insured party makes a claim for compensation. They want to verify the incident, through their independent inspectors and they look for documents (usually original contracts or purchase documents) to calculate the value of the insured item. Therefore, you need to pay due attention to the details of the insurance policy or contract document, when you plan to buy any sort of insurance, for example, for your business, for your car, motor-bike, home or home-contents, for your life, health, accident and illness or for your pet. Pay attention to the conditions put in FINE-PRINTS on the policy-document before you accept the policy. If you are not clear about any terms of content, then it would be wise to ask for more information before signing the contract.

More Tips on Buying Insurance!

Important but not least, bear in mind that, in the insurance offers, you may be enticed to add many features that you may not necessarily want them. Contrarily you may ignore to include important insurance cover elements. Some are highlighted below:

In the case of car insurance, a “courtesy car” provision may sound nice to include, but this usually increase your insurance premium. The insurance cover will always help you get to your destination, but the costs related to the courtesy car is not usually straight forward as many requests are made by the insurance company (e.g.; full driving license) when you ask for the courtesy car.

Another factor to consider is, there is the so-called “voluntary excess” which is the amount of money the insured person would be willing to pay as a share of payment towards the damage that occur during accidents. The higher the willingness to pay voluntary excess, the lower your insurance premium would be. Going for higher voluntary excess may sound good, but the amount should be affordable to you.

Legal cover is another important element of insurance contract to consider. You can add this element to your contract at an extra small amount of money; it will save you a lot of hassle when the accident happens.

Break-down cover, is also worth including in your insurance, for example when you buy auto-insurance. It may be cheaper when you buy it as a package instead for as separate contract. Another factor to consider is that, the Break-down policy my cover you straight from your home, or it may only cover you when you are certain miles of kilometres away from home. Take for example, you found your car unable to start-up in the morning, but your break-down cover only covers you when you are away from home; in this case, you have to call for a mechanic for help which could be too costly. So it would be wise to make sure you are covered for such situations. The only difference in amount this adds to your premium would be minimal, but its importance is high.

Hope this has contributed to your understanding the term “insurance”.

By: Yohannes Berhe
Updated: March 2nd 2012
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