Tomasz Wiśniewski How Does Insurance Work?

1. What Is Insurance?

Insurance is an agreementagreementagreement between two partiesparties [party]parties: the insuredinsuredinsured and the insurerinsurerinsurer, who sign a legal contract called an insurance policyinsurance policyinsurance policy. It has details about the conditions and circumstancescircumstances [circumstance]circumstances under which the insurance company will pay outpay outpay out the insurance amount to the insured person if that person suffers a losssuffers a loss [suffer a loss]suffers a loss and reports it. This might be against a fire or a  floodflood (noun)flood (interestingly, uncontrollable natural forces are called ‘acts of Godacts of god [act of god]acts of God’ in insurance documents!), and there are thousands of insurance types. We can insure our health, our car and our house, and people often get insurance for the things that allow them to make money, for example football players can insure their legs and actors can insure their bodies! It is up to the insurer to decide which risks are insurableinsurableinsurable or uninsurableuninsurableuninsurable.

2. Insurance PremiumpremiumPremium

When people buy insurance, they make regular payments to the company that are called ‘premiums.’ In exchange, they are covered against riskcovered against risk [cover against risk]covered against risk. The company agrees to pay them for losseslosses [loss]losses if those risks occuroccuroccur. The amount of money one has to pay for the premium depends on the level of risk, but also on the sum that has to be paid out if the risk occurs. For example, the insurance premium for an expensive sports car driven by a young male (who statistically is more likely to take risktake risktake risk) is a lot higher than a premium for a woman (who statistically takes fewer risks) driving a small city car. Also, life insurancelife insurancelife insurance premiums vary between high‑risk jobshigh‑risk jobs [high‑risk job]high‑risk jobs (such as actors and construction workers) and low‑risk jobslow‑risk jobs [low‑risk job]low‑risk jobs (for example, accountants).

3. No Claims Bonusno claims bonusNo Claims Bonus

If one doesn’t make a  claimclaim (noun)claim on the insurance (that is, if they do not ask for a payout because nothing bad has happened) for a long period of time, they can acquireacquireacquire a so‑called No Claims Bonus, which basically means their premium goes down each year. This happens a lot with car insurance. The premium can go down up to 70% over a few years. The trick is that once there is an accident, the bonus disappears and you have to go back to paying standard, high premiums, so be sure you behave safely! Bonus fact: some insurance companies can insure your No Claims Bonus!

4. Conditions

The most important party is the underwriterunderwriterunderwriter which is the company that signs and accepts the liabilityliabilityliability (the responsibility for the risk) in the insurance policy. It is usually a rich, powerful bank that can afford to pay out large sums of money. In this way it guarantees payment in case loss or damage occurs. The underwriter’s main services are usually not connected to the insurance business directly, so they hire brokersbrokers [broker]brokers whose job is to maintain contact between the underwriters, the insurance buyers, and the agentsagents [agent]agents who personally sell the insurances. Another important job in the insurance business is the actuaryactuaryactuary. Actuaries are strategic thinkers who calculate the risks and the insurance premium.

5. ProspectusprospectusProspectus

The prospectus is a printed booklet advertising the insurance to potential policy buyers that gives details of the insurance policy, prices, conditions, and the amounts of payouts. They are usually handed out by agents, and need to be studied very carefully, because they are full of very specific conditions written out in small printsmall printsmall print. If these conditions are not met, you might not get reimbursedreimbursed [reimburse]reimbursed!

1 Źródło: Tomasz Wiśniewski, dostępny w internecie: https://www.maxlifeinsurance.com/blog/life-insurance/types-of-insurance [dostęp 16.02.2023], https://www.investopedia.com/financial-edge/0212/4-types-of-insurance-everyone-needs.aspx [dostęp 16.02.2023], https://www.forbes.com/advisor/insurance/types-of-insurance-policies/ [dostęp 16.02.2023], licencja: CC BY-SA 3.0.