Insurance is synonymous to a lot of people sharing risks of losses expected from a supposed accident. Here, the costs of the losses will be borne by all the insurers.
For example, if Mr. Adam buys a new car and wishes to insure the vehicle against any expected accidents. He will buy an insurance policy from an insurance company through an insurance agent or insurance broker by paying a specific amount of money, called premium, to the insurance company.
The moment Mr. Adam pay the premium, the insurer (i.e. the insurance company) issue an insurance policy, or contract paper, to him. In this policy, the insurer analyses how it will pay for all or part of the damages/losses that may occur on Mr. Adam’s car.
However, just as Mr. Adam is able to buy an insurance policy and is paying to his insurer, a lot of other people in thousands are also doing the same thing. Any one of these people who are insured by the insurer is referred to as insured. Normally, most of these people will never have any form of accidents and hence there will be no need for the insurer to pay them any form of compensation.
If Mr. Adam and a very few other people has any form of accidents/losses, the insurer will pay them based on their policy.
It should be noted that the entire premiums paid by these thousands of insured is so much more than the compensations to the damages/losses incurred by some few insured. Hence, the huge left-over money (from the premiums collected after paying the compensations) is utilized by the insurer as follows:
1. Some are kept as a cash reservoir.
2. Some are used as investments for more profit.
3. Some are used as operating expenses in form of rent, supplies, salaries, staff welfare etc.
4. Some are lent out to banks as fixed deposits for more profit etc. etc.
Apart from the vehicle insurance taken by Mr. Adam on his new vehicle, he can also decide to insure himself. This one is extremely different because it involves a human life and is thus termed Life Insurance or Assurance.
Life insurance (or assurance) is the insurance against against certainty or something that is certain to happen such as death, rather than something that might happen such as loss of or damage to property.
The issue of life insurance is a paramount one because it concerns the security of human life and business. Life insurance offers real protection for your business and it also provides some sot of motivation for any skilled employees who decides to to join your organization.
Life insurance insures the life of the policy holder and pays a benefit to the beneficiary. This beneficiary can be your business in the case of a key employee, partner, or co-owner. In some cases, the beneficiary may be one’s next of kin or a near or distant relation. The beneficiary is not limited to one person; it depends on the policy holder.
Life insurance policies exist in three forms:
• Whole life insurance
• Term Insurance
• Endowment insurance
• Whole Life Insurance
In Whole Life Insurance (or Whole Assurance), the insurance company pays an agreed sum of money (i.e. sum assured) upon the death of the person whose life is insured. As against the logic of term life insurance, Whole Life Insurance is valid and it continues in existence as long as the premiums of the policy holders are paid.
When a person express his wish in taking a Whole Life Insurance, the insurer will look at the person’s current age and health status and use this data to reviews longevity charts which predict the person’s life duration/life-span. The insurer then present a monthly/quarterly/bi-annual/annual level premium. This premium to be paid depends on a person’s present age: the younger the person the higher the premium and the older the person the lower the premium. However, the extreme high premium being paid by a younger person will reduce gradually relatively with age over the course of many years.