WHAT IS AN INSURANCE POLICY ?
An Insurance Policy is a legally binding contract between the person who buys
the policy and the Insurance company. The person who buys the policy is commonly
called the "Policyholder", who is also often the person insured.
The policyholder pays a specified sum of money, called the "Premium"
to the Insurance company in exchange for an agreement by the Insurance company
to pay a certain types of loss or damage as specified in the contract. In the
event a loss occurs, which meets all the requirements described by the terms of
an Insurance policy, the loss is said to be "covered" by the policy.
HOW DOES AN INSURANCE POLICY "PROTECT" ME ?
Economic loss, which is, loss or damage that can be measured in purely financial
terms and compensated by money is the protection offers by Insurance Policies.
For example, an Insurance Policy can pay for the cost to rebuild a building damaged
by fire or replace a damaged car, for the cost of medical treatment for an injury
or illness or for the lost income of a person who dies or is unable to work. The
purpose is to place the injured party, as nearly as possible, in the same financial
position as if the loss had not occurred.
There are many types of losses which can not be compensated by money, therefore,
it is important to understand this limitation of insurance. For example, Insurance
cannot replace a life or take away the emotional injury or pain which often accompanies
an accident or serious illness or compensate for loss of the "sentimental"
value of an item of property. When you buy a life insurance, you are insuring
only the economic value of the person who is insured, i.e., the financial consequences
that can be expected to result from the person's death. When you buy homeowners
insurance, you are insuring only the economic value of the home, i.e., the cost
of rebuild or repair it.