Why Do I Need Insurance?
Insurance is a written contract between an insurance company (insurer) and an individual or entity, where the insurer provides protection against financial losses. The insurance company can provide this protection by pooling risk from a large group of individuals and entities with similar needs.
Insurance is generally designed to protect you in the event of a loss you can’t otherwise pay for, such as totaling your car or requiring expensive surgery. If you don’t carry insurance, you may be 100% responsible for all related costs and expenses when an accident happens.
An insurance policy is a legal contract through which an individual or entity receives protection against unexpected financial losses from an insurance company. In exchange for a premium, the insurance company will reimburse you for losses should a covered contingency arise.
Let’s say you just bought a car and need to buy insurance, as required by your state. You and the insurance company would enter into a contractual agreement in which the insurance company agrees to protect your car against certain types of damage. Six months later, you are involved in an accident that damages your front fender. If your car insurance policy is active and the damage to your fender is covered, your insurer will pay to repair the damage up to the limits specified in the policy.
Insurance is a way to manage unforeseen risks. The instrument by which it does this is a written contract between an insurer (the insurance company) and a policyholder (the individual or entity that obtains the policy) — these documents are the insurance policy.
An insurance policy remains in force for a specific period, known as the policy term. When the term ends, you usually have the option to renew the policy, terminate it, or purchase a new one. When you buy an insurance policy, you should understand what it covers, any exclusions that limit coverage, and the responsibilities you must fulfill for the insurance company to reimburse losses.
- Declaration Page: The insurance declaration page is the first page of your policy and identifies policy basics, including the insured, covered risks, policy limits, and the term of the policy.
- Insuring Agreement: The insuring agreement summarizes what the insurer promises to do in exchange for your premium.
- Exclusions: The exclusions section comes after the insuring agreement and highlights what your policy doesn’t cover.
- Conditions: The conditions section includes provisions that qualify or limit your insurer’s promise to reimburse or perform. The insurer can deny a claim if you fail to meet these conditions.
