What are the basics of insurance?

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asked Jun 11, 2022 in Insurance by webworld (850 points)
What are the basics of insurance?

2 Answers

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answered Jun 13, 2022 by Wendell (41,840 points)
The basics of insurance is to provide protection and guarantee a payment in the future for something such as a health issue, automobile accident, natural disaster etc.

The primary purpose of insurance is to provide protection against future risk, accidents and uncertainty.

Some ways to reduce your insurance cost are to shop around for different insurance policies at different companies, pay a higher deductible, bundle your insurance such as your homeowners and auto insurance or add additional vehicles to the same insurance policy for an auto insurance discount, reduce coverage on older cars and vehicles, drive an older vehicle, only get liability auto insurance if you can, have a good credit score.

Some factors that may affect your auto insurance premiums are your car, your driving habits, demographic factors and the coverage's, limits and deductibles you choose.

These factors may include things such as your age, anti-theft features in your car and your driving record.

The 3 main types of insurance are.

Homeowners and Property Insurance.

Auto or Car Insurance.

Health Insurance.

Insurance companies make their money through the premiums they charge and through investments.

Insurance companies hope to not have to pay out on an insurance claim and a majority of people pay insurance premiums and never claim on their insurance.

So with those people who never claim on their insurance the insurance companies rakes in that money and is able to keep it and invest it elsewhere as well.

Big Insurance companies are rich in money and are able to easily pay out for thousands of dollars on insurance claims and still make a profit.

Most insurance companies generate revenue in two ways: Charging premiums in exchange for insurance coverage, then reinvesting those premiums into other interest-generating assets.

Like all private businesses, insurance companies try to market effectively and minimize administrative costs.

Many insurance firms operate on margins as low as 2% to 3%.

Smaller profit margins mean even the smallest changes in an insurance company's cost structure or pricing can mean drastic changes in the company's ability to generate profit and remain solvent.

Also underwriting income and investment income are the main sources of profits in insurance companies.

Insurance companies provide insurance by collecting premiums from policyholders and indemnifying those policyholders for covered losses that they suffered during the policy period.

If they're right, they make money. If they're wrong, they lose money.

But, they aren't too worried if they guess wrong.

They can usually cover losses by raising rates the following year.

A “Risk pool” is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes.

The five largest homeowners insurance companies in the U.S. are State Farm, Allstate, USAA, Liberty Mutual, and Farmers.

Insurance companies are classified as either stock or mutual depending on the ownership structure of the organization.

There are also some exceptions, such as Blue Cross Blue Shield and fraternal groups which have yet a different structure.
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answered Jun 14, 2022 by Gregorysharp (18,140 points)
The purpose and basics of insurance is to provide financial protection to yourself, your business and other people who may do business with you.

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