What is Insurance

August 9th, 2011 | Author: Mitch Reynolds

Understanding What is Insurance

This is the first article in a series being written on “what is insurance”. Through the “what is insurance” series we will look at what are the defining characteristics of all the different life, health and living benefit products in Canada. Here are all the articles in the “what is insurance” series:

Definition of What is Insurance

What is insurance The basic definition of insurance is a form of risk management primarily used to hedge against the risk of uncertain loss. Insurance is the equitable transfer of risk of a loss, from one entity (person or business) to another (the insurance company), in exchange for a payment (premium).

An insurer is the company selling the insurance policy. An insured or policy holder is the person or business buying the insurance policy. An insurance policy can be purchased on a third party (like a parent owning insurance on their child or a business owning insurance on a key employee).

The premium is determined by the insurance rate charged on the insured’s risk. The insurance rate depends on many factors, like age, health, occupational duties, amount of coverage, etc. Calculating the exact amount to be charged for the premium is done by actuaries, who are specialized in pricing risk and developing insurance products.

How do you get insurance

Insurance is purchased through a transaction where the insured (person or business) applies to the insurer for a policy. The insurer (insurance company) evaluates the risk of the application to see if it meets the “standard” classification of risk they would expect from the general population of people applying for insurance coverage. If the risk is normal or expected, the insurer offers a policy with the standard rates they have developed on their risk tables. If the risk is lower than normal, the insured might be offered a preferred rate which will lower their premium. If the risk is higher they might be rated, or asked to pay more for a sub-standard risk.

It is always the choice of the insured whether or not to accept the insurance companies offer of a policy. If there have been any changes to the original application, like an increased or reduced premium, the insured must sign their acceptance of the policy before it goes in force (the insurance takes affect).

Shopping the Canadian Insurance Market

There are many insurance companies in Canada offering similar policies. A qualified insurance broker will know the difference between the insurers and the features and benefits of their policies. You will be best served by an insurance broker when trying to find an insurance policy to meet your needs. They can help you understand what is the difference between all the different types of insurance (life, health, disability, critical illness, long term care, etc.).

What is Insurance – Learn More from Life Guard Insurance

Taking the next step to understand what is insurance and how it might fit into your financial plan is easy. Feel free to contact Life Guard Insurance to answer the question “what is insurance” for your unique situation.

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