Now I won’t take you back to the 2nd and 3rd millennia BC where Chinese and Indian traders distributed the risk of losing their goods by loading them up on numerous ships. This is where the base principle of insurance is gotten from. When these traders loaded their goods on numerous ships and let’s say one or two got swallowed by the treacherous ocean or river rapids. They only had to deal with losing a minimal amount of their goods compared to if they loaded the goods in one ship. I know many of you would definitely load up all your goods on one ship, I too might but let’s look at it in relation the modern day. Here you’d be the trader and the insurance company would be the guy who let you hire his ships, so you as a trader would hire numerous ships.(Now the ships are metaphorical premium/money that you pay to the insurance company). Now let’s say you lose two ships out of the ten to the wild sea, this means you’d pay a lesser amount to the owner of the ships and suffer a smaller loss than if you packed everything on one ship, which I know many of you would do. This still means you pay the owner of the ships for hiring the 8 ships that didn’t sink but the full value for the two that did. Now in case you had one big ship that sank you’d lose your goods and still have to pay for a whole larger ship that costs more than a small ship. This just means that insurance’s main target is to help you handle a loss that would rather be devastating if you weren’t backed by the insurer, and since many people are already paying for insurance then the insurance company can handle backing your loss even if the total premium you’ve paid isn’t amounting to the value of loss that you just had. Now it all looks good when put it like that until you realize you’re paying a premium for something that is not likely to happen though it can happen. Then you’re stuck in a cycle of being billed for no reason which may not be affordable for everyone, worse its not even sensible to people who know they can fully back that loss in case it happens.
I believe I’ll have to first clear the air before we go on about a few terms that may be used as we go on:
- The company that provides insurance is called an insurer.
- You whose being covered by the insurance is the insured.
- Premium is the money that you pay to get the insurance coverage.
- An event is the loss or damage insured against.
Now the premium that you pay isn’t just some randomly guessed amount or something that the insurance company’s boss came up with, and said I think we should over charge people. The fee is dependent upon the frequency and severity of the event occurring. This gives your heart some peace knowing that in case a loss is likely not to occur then the premium is less and you won’t have to break that piggy bank you have under your bed(that’s if those things still exist).
Now one important thing you have to have know down to its molecular structure are the principles that govern insurance. These are the rules that govern the insurance game and to play the game, you mustn’t break any rule or you’ll face the consequence of replacement being forfeited or not qualifying for an insurance program. Unfortunately I don’t have the luxury of resources to unveil to you the principles of insurance because they are so wide and have multiple aspects around each one. Wikipedia can definitely help you out in case you want to go into great depth. You can also ask any professional around you but i feel you’d be going over board with that unless your dead on serious. I’ll just outline for you the insurance principles below with a bit of explanation to each principle.
Insurance principles
The principles of insurance are fundamental concepts that guide the operation of the insurance industry. They ensure that both insurers and policyholders have a clear understanding of their rights and responsibilities. Here are the key principles:
-
Utmost Good Faith (Uberrimae Fidei):
Both parties (the insurer and the insured) must disclose all material facts truthfully and fully. The insured must provide accurate information regarding the risks being covered, and the insurer must clearly explain the terms of the policy. -
Insurable Interest:
The insured must have a financial interest in the subject matter of the insurance. This means the insured must stand to lose financially if the insured event occurs. For example, a person can insure their own home but not a neighbor’s home. -
Indemnity:
Insurance aims to restore the policyholder to the same financial position as before the loss occurred, but not to profit from the loss. This means the amount paid in a claim should not exceed the actual loss suffered by the insured. -
Subrogation:
After compensating the insured for a loss, the insurer has the right to take legal action against third parties responsible for the loss. The purpose of subrogation is to recover the amount paid to the insured from the liable party. -
Contribution:
If an insured person has multiple policies covering the same risk, each insurer will pay a proportion of the claim. This prevents the insured from being over-compensated for the same loss. -
Loss Minimization:
The insured is expected to take reasonable steps to prevent or minimize the loss. For example, they should lock their house or car to prevent theft, or install fire alarms to reduce the risk of damage. -
Proximate Cause:
Insurance coverage is based on the “proximate cause” of the loss — the event that directly leads to the damage. If a loss occurs due to multiple causes, the insurer will consider the dominant cause when determining the claim.
These principles ensure fairness and transparency in the insurance process, and help to maintain the balance between the rights and duties of both the insurer and the insured.
We now have the principles of insurance out of the way and now comes the types of insurance. You have to be knowledgeable about the different types before you go out there subscribing to shit you’ve never heard of.
Types of insurance
Insurance can be broadly categorized into several types based on the purpose and the risks covered. Here are the main types of insurance:
1. Life Insurance
This provides financial protection to beneficiaries in the event of the policyholder’s death. Types include:
-
Term Life Insurance: Covers for a specific period (e.g., 10, 20 years).
-
Whole Life Insurance: Covers the insured’s entire life, with a savings component.
-
Endowment Policy: Pays out a lump sum after a specified term or on death.
-
Unit-linked Insurance Plans (ULIPs): Combines insurance with investment.
2. Health Insurance
Covers medical expenses due to illness, injury, or hospitalization.
-
Individual Health Insurance
-
Family Floater Insurance
-
Critical Illness Insurance
-
Mediclaim
3. General Insurance
Non-life insurance that covers losses other than death.
a) Motor Insurance
-
Third-Party Insurance: Mandatory by law; covers damages to others.
-
Comprehensive Insurance: Covers both third-party and own damages.
b) Home Insurance
Covers damages to a house and its contents due to fire, theft, natural disasters, etc.
c) Travel Insurance
Covers trip cancellations, medical emergencies, lost luggage, and other travel-related risks.
d) Fire Insurance
Covers damages to property caused by fire and related perils.
e) Marine Insurance
Covers loss or damage to goods in transit over sea or air.
f) Burglary/Theft Insurance
Covers loss due to burglary or theft from premises.
4. Liability Insurance
Protects against legal liabilities due to injury or damage caused to other people or property.
-
Public Liability
-
Product Liability
-
Professional Indemnity Insurance
-
Employer’s Liability Insurance
5. Commercial Insurance
Covers businesses against potential losses.
-
Property Insurance
-
Business Interruption Insurance
-
Group Health Insurance
-
Cyber Risk Insurance
Each type of insurance is designed to manage specific risks and provide peace of mind by reducing financial uncertainty. Let me know if you’d like details on any specific one.
Now this takes us back to the reason you’re here, do you need insurance?
This is all going to come down to who you are as an individual and what takes part in your life for example you may be a business man who runs thousands of deals and probably is always shipping things or has a huge warehouse for his merchandise. It’s obvious here because you wouldn’t want to put yourself in a position where you could lose everything that you have. So yes, you would have insurance here and it’s also important to note that there are many business ventures that don’t let you start without insurance to cover a few things.
Then if you are an average Joe like me then you’ll barely need the insurance to cut the cost of losing something because at that point, the insurance may be more expensive than what you’re afraid of losing. In the long run it will be pointless to have some types insurance at all. this just shows how handy insurance can be in our day to day lives and is something that shouldn’t be taken lightly.
All you have to do is balance between the draw backs and the benefits and you’ll be laughing your way through it like a breeze.
Read also: Do you need Insurance: Let’s find out!
