The easiest way to describe insurance is as a type of risk management that offers protection in the case of unanticipated circumstances such as death or disability, car accident or a burglary.

The person buying the insurance policy is known as the insured. The insured will buy insurance from an insurance company, called the insurer. The amount that you’ll be charged for your insurance policy is the premium.

Insurance can be defined as the act of incurring small expenses (in the form of your premiums) in exchange for coverage from the insurance company in the form of compensation in the event of a loss by the insured.

The way insurance companies operate can be explained by using the following example: If you have a group of 10 to 20 friends, each one can put a small contribution (in the form of money) in a piggy bank each month. If one of the friends is in an accident or robbed, the money in the piggy bank can be used to repair the car or replace the stolen items. Insurance companies have the advantage of receiving premiums from thousands of insured entities, enabling them to pay for losses or damages that only some of their clients will incur. The insurance piggy bank is therefore worth substantially more than the friends’ piggy bank and funds can be pooled from there in order to process received claims.

Any risk that can be measured can potentially be insured. The different types of insurance include the following: Car insurance, home insurance, health insurance, accident, sickness and unemployment insurance, casualty insurance, life insurance, property, liability and credit insurance.

Because there are so many varied types of insurance policies available, it makes sense that insurance companies are also divided into different groups: The first group is known as life insurance companies. These companies will sell pension products, annuities and life insurance. The second group is known as non-life insurance companies, general or property/casualty insurance companies and they will sell all other types of insurance.

So now that you have your safety net in place (by meant of an insurance policy) you can all for all practical reasons live a reckless and carefree life, right? Why should you be cautious now that you’ve transferred your risk from yourself to the insurer? Insurance companies are unfortunately one step ahead of you and have taken precaution to protect themselves against high-risk clients with this approach. Therefore, people in high risk professions or people engaging in extreme sport will have to pay more for their life insurance policy. An older person with a family car will pay lower car insurance premiums than a youngster with a sports car. These clauses are there to protect the insurance companies from being exploited by some clients.

Insurance policies can be quite confusing. Do not hesitate to call in the assistance of a broker, or to arrange a meeting with one of the insurance company’s agents. There are a lot of qualified professionals available to assist the main on the street with choosing the correct insurance policy.

Always expect the unexpected and make sure that you are adequately covered!

For more insurance, go to http://www.insurance.co.za