In one form or another, we all know insurance or at least we’ve heard the word “insurance” before but sadly, about 86% of Nigerians don’t have any form of insurance cover (according to a survey by NOI polls). However, some Nigerians especially the highly educated and exposed ones have embraced insurance because of its numerous benefits and very little disadvantages. While some of us own insurance, many of us don’t understand what it is or how it works. In this article, we’ll review the basics of insurance and how it works.
Before we start, let’s define some insurance terminology you should know:………………
Insurancee – is a practice by which a company (insurancee company) provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment (premium).
Insured – The person who obtains or is otherwise covered by insurance.
Insurer – The insurance company that issues a particular insurance policy to an insured.
Premium – Payment made by the insured to the insurer (insuranc.e company) in exchange for a guarantee of compensation in case of a loss.
Coverage – The amount of risk or liability covered for an individual or entity by the insurer.
Policy – A contract of insurance, describing the terms, coverage, premiums and deductibles.
Policy Holder – The owner of an insurance policy; usually, but not always, the insured.
Claim – A formal request to an insurance company asking for a payment based on the terms of the insurance policy.
How Insuranc(e) works
Insurancee allows individuals, businesses and other entities to protect themselves against significant potential loss and financial hardship at a reasonable affordable rate. When things go wrong, it can be expensive, and so for many of these eventualities, insurance is there to take the financial burden off you. Let me explain with an example.
You saved a good chunk of your salary for 2 years so that you can buy your dream car. Finally, you got the car and painted the town red for a week then on that cold Friday night, you parked your car by the side of the road to get suya. A drunk driver from nowhere ran his truck into your brand new car and crushed it. The car was a complete write-off; nothing can be done to save it. What now? Start saving for another 2 years? God forbid right? I know; It may never happen. You could use that car for as long as you wish without getting into any serious accident. Yes; it’s a 50:50 situation but what if the worst happens? This is where insurance comes in.
In insurance, the insurance company agrees that IF the car (or any other insured property) is damaged, they (the insurer) will pay the cost of repairing or replacing it in exchange for a small fee (premium).
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