Guide to What is Insurance and it’s Types and Components!

Insurance refers to a contractual agreement between the insurer and the insured. Here, the insurer or the insurance company agrees to compensate for the loss or damage to the insured. If you apply for insurance then you need to pay an adequate consideration called premium to avail the service. In most cases, it represents the insurance policy. If you want to know the details of what is insurance and how does it work then read the complete article.



What’s the History behind Insurance?

In the United States, the first insurance company underwrote fire insurance. It was formed in Charleston in the year 1735. And it was only in 1752 that the mutual insurance company was formed with the help of Benjamin Franklin. It is called Philadelphia Contributionship and it is one of the oldest insurance carriers in the United States. It’s surprising that the carrier is still running successfully. In fact, Franklin’s company was the first one to contribute to fire prevention.

The Insurance Company Of North America is the first stock insurance company formed in the United States in the year 1792. However, the formal regulation of this industry was noted in 1851. It marked the appointment of the first state commissioner of insurance. After eight long years, the state insurance department was created to ensure a more comprehensive regulation of insurance at the state level.

Also read: 8 Major differences between insurance and assurance



Are Their Different Types Of Insurance Companies?

There are different companies that offer different policies. Most of the people in the United States apply to one of these sections of companies.


#1: Casualty and Property Companies

Casualty and Property companies insure you if there is some sort of accident that doesn’t involve physical harm to you. It will include car accidents, damage to your personal asset, or lawsuits. If you own a large property then it includes State Farms too.


#2: Life Insurance Companies

Life insurance companies, on the other hand, involves policies that pay a certain amount after the insured is dead. It is just like the name suggests. Here, you are insuring your life. These are further termed into life or permanent insurance. If you want a policy that lasts a lifetime and carries a component of cash accumulation then you must go for a permanent policy. Some of the popular companies providing such policies are Guardian, Mutual, William Penn, and Prudential.


#3: Accident and Health Companies

Accident and health companies are one of the most popular companies. There is a reason for it. People are more concerned about the charges they have to pay to hospitals. We all know how expensive this sector is so the popularity doesn’t come as a surprise.


#4: Business Related Insurance Companies

If you are running a business then you will need another type of policy. These types of policies are meant to provide protection from the risk involved in your business. For example, if you are running a manufacturing company that you would like to insure the damage that occurs due to the failure of machines.



What Are The Main Components Of Insurance Policy?

If you know the basic concepts related to Insurance, it will be easy for you to choose the policy. A policy consists of mainly three components.


#1: Premium

If you want a policy then you need to pay a certain amount on a monthly basis. This amount is termed as premium and the insurer determines it. The insurer will analyze your business’s risk factor to come to the conclusion.

For example, if you are applying for health insurance and you suffer from a few health ailments then there is greater risk involved. So you need to pay a high premium amount to the insurer. You must consult different insurers to find the least premium amount of policy.


#2: Policies Limit

Insurance is not a magician that has no limits. There is a limit up to which it can cover a loss. A policy limit is actually a limit set for the maximum amount an insurer pays you. For different policies, the settings differ.

For example, the maximum limit is set on your injury that doesn’t involve surgeries. So if you meet with an accident that requires you to go for surgery then the insurer won’t pay for it. In a similar manner, the maximum limit can be set on the time period too. The prolonged policy period means a higher premium amount. So in a way, your choice can influence the policy limit too.


#3: Deductible

This is an interesting component of the policy. The deductible is a specific amount that you have to pay to the insurer before you can file a claim. It acts as a deterrent to small and insignificant claims. In a way, it acts as a security for the insurer.

For example, you own an accident insurance policy for a huge amount. After two months you meet with an accident and you have to pay a huge medical bill. Now, the insurer won’t get any benefit by paying your medical bills after receiving only two premium installments. So it’s good if they set a deductible. Depending on the insurer, the deductibles are set on a per-policy basis or per-claim policy.


Final Words

There are multiple types of policies available. From an individual to a business, there is a policy for each one of you. The insurance companies offer varied benefits to insured customers. Some of the most common types of insurances are auto, health, life, accident, and home.

You can apply for any type of insurance both online and offline. Companies hire agents and they help you with the whole process. If you will search on search engines, you will find the list of various companies in the United States. From the policy forms to terms and conditions, everything is available on their website. You can do online research and shortlist your favorite company.

In this article, we have tried covering all the aspects related to insurance. If you want to know more about it or there is any suggestion then comment below. We will try to get back with answers as soon as possible.