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There are a number of things written and said about insurance that highlight the benefits, features, and more of the money lending facility. However, out of the most discussed topics, one of the topics that is not talked much about is the characteristics of Insurance.
We might all be aware of what insurance is, what it offers, and why we should opt for it, but how many of us really know its characteristics? Not many. Having knowledge about the characteristics helps to get a better understanding of insurance which today has become a must-have.
So, without further ado, let’s explore the characteristics of insurance.
Insurance is a contractual agreement between the insurance company and the policyholder. This contract is bound by certain obligations that both parties are required to fulfil to keep the contract legal. These obligations state that the insured is required to pay a premium to the insurer regularly. Furthermore, the insurance provider needs to compensate the insured for the losses mentioned in the policy. Also, the insurance contract is non-transferable without the consent of the insurance policyholder.
Premium paid by the policyholders is used by the insurance company to recover the losses incurred by insured individuals. It helps in reducing the burden of heavy losses on a single individual in case of any contingency. This way risk of a single individual is pooled among different individuals and its effect of the loss is minimized.
The cost of risk is the value of an object which is insured under the insurance policy. Insurance companies properly evaluate the value of the subject matter before entering into a contract. Proper valuation of the insurance object helps the insurer in the calculation of the right premium amount to be paid by the insured. The higher the risk associated with the insured object, the higher will be premium charged and vice versa.
Insurance policies assure the policyholder that compensation will be provided to you in case of losses and damages. Insurance companies guarantee the protection of the policyholders and assure to bring them back on their feet post the damages. This sense of relief for the insurer motivates them to invest in insurance policies.
This means that compensation is paid to the insured only on the occurrence of the contingency. The agreement states that the insured is liable to claim compensation from the insurer only if he incurs losses. The insurer is not liable to pay any compensation in case there are no losses to the insured.
This means that any misrepresentation or concealment of facts from either the insurer or the insured will make the insurance contract void. The policyholder is required to disclose full information regarding the insurance object without any omission or mistakes. Similarly, insurance companies must explain clearly the terms and conditions of the insurance contract to policyholders.
Insurance contributes greatly to the well-being of individuals. The characteristics of insurance mentioned above and a variety of benefits, make insurance a wise investment.