Insurance is a mechanism by which losses resulting from certain risks are spread over a large group of people who are likely to suffer from it. It is a form of risk management whereby a person enters into a contract with an insurance company that undertakes to cover the person against the particular risks. The company that provides insurance is called an insurer while the one who buys insurance is called an insured. The insured pays an amount known as a premium to the insurer under the insurance policy. This way, the insured is guaranteed compensation in the event of the occurrence of loss resulting from risks covered by the insurer.
Notably, there are different types and levels of insurance but they can be classified into two broad categories insurance: life insurance and general insurance. Life insurance provides compensation to the insured in case of disability or death. The essence of this insurance is to secure your family financially in case of your absence and it is also a form of savings. Under the life insurance, there are different levels and types of insurance. For instance, term insurance that covers a person for a specific period, whole life insurance policy that covers the insurance for their entire lifetime and endowment policy whereby the family is paid a lump sum amount upon the death of the insured.
General life insurance provides compensation on any form of loss apart from death. It important since it secures your property, for example, house, car against losses resulting from fire, theft. General insurance also encompasses health coverage which covers medical treatments of illnesses. Therefore, insurance is vital for reducing the uncertainties of human life and thus promoting a quality life for the insured. It is also advisable for one to understand the policy terms of an insurer before entering an insurance contract with them.