How Does Insurance Work
How Does Insurance Work |
Basic Concept of Insurance
The basic
concept of Insurance is that a company the insurer offers a guarantee for a
certain risk that may or may not occur then another party the insured pays the
insurer in exchange for protection against that risk when a bunch of people does
the same thing for the same risk eventually the insurer is getting a lot of
income but the probability of that risk happening is spread out among a bunch
of people and stays about the same.
How Insurance Company Work?
Insurance companies make money by figuring out how much money they
need to bring in to turn a profit on a given risk with a given probability that
calculation then influences how much each of the insured pays each month in
general it's simple math but in actuality, Insurance companies have highly
complex models for all of this, not every.
Insurance company offers the same Insurance most Insurance
companies will specialize in their own kind of Insurance this is because each
company has to develop a complex model to ensure that they can make money
insuring a profit if you estimated that 1 in 100 houses burned down each year
but it was actually 5 in 100 then you'd be losing money pretty fast if you
insured those houses you'd probably charge too little for everyone's Insurance
and then end up on the hook for those four extra houses.
There are many
types of Insurance companies from auto to health to life to homeowners most
people in the world have these core Insurance policies some of which are
legally required to be held like Auto Insurance you might be
wondering though why wouldn't you just want to save your money each month get
to hold on to it in a bank account then if nothing bad ever happens you have a
lot more money well while that may be true it makes you the one exposed to the
risk if you put away 200 a month for a year to save on home Insurance you'll
have an extra 2400 at the end of the year however if your house burns down the
next year well then you're going to be out the few hundred thousand dollars
that it's going to take to fix it a pretty bad deal is that a risk you're willing
to take chances is it isn't that's.
Why Are People Getting Insurance?
Why getting
Insurance is generally a good thing it takes all of the risk and anxiety and
financial burden off of you and puts it onto a much larger company that can
afford it when you understand Insurance as just a way of paying a company to
ass e your risk you can start understanding that Insurance could, in theory, be
offered on virtually anything are you worried that while you're
toasting a cinnamon raisin bagel your toaster will overheat one of the raisins
causing it to burst into a spontaneous plasma and destroy your entire pantry
full of stockpiled bags of lucky charms and baked beans well that's oddly
specific but someone could probably insure you for that exact thing likewise
maybe you're really attractive and worried that if you fall one time you're
going to hit your face stop being attractive and be depressed because no one
will like you anymore.
Well, somebody
could probably insure you against that 2. this isn't too far off of reality
either celebrities will often have parts of their body insured because their
image is a source of their income there are a few more pieces to the puzzle here
though and we should talk about reInsurance and Insurance claims.
Reinsurance Policies
When an
Insurance company wants to buy Insurance on their own Insurance Policies
well then they buy something called re-Insurance that is not a joke say an
Insurance company realizes that they're overexposed to home fire Insurance and
a hot s mer is coming up while they could take out reInsurance policies
on their Insurance policies to protect them from high losses in case all their
houses they ensure just burst into flames because global warming and whatnot
then all the risk is all on the reInsurance agency this is a necessary thing
two think if an Insurance company insured everyone in Florida's cars but then a
hurricane came through and destroyed all the cars well that Insurance company
may owe more in payouts than they have and once they run out of money well then
no one would get money for their destroyed car like they thought they would
reInsurance is necessary and important to ensure that Insurance companies
remain profitable and solvent to pay insured when there are in terms of claims.
When An Insurance Company Refuses
Insurance companies also don't just automatically pay out if you
have car Insurance and you show them a crashed car the Insurance company will
investigate to make sure that you didn't intentionally crash your car to get
the payout if they find out that you did do that well that's called fraud and
you can go to jail faking Insurance claims actually does happen quite
frequently people see it as a way to either get a big cash windfall if they're
in hard times or get out of a car or house payment that they can't afford
however car Insurance agencies employ top-of-the-line investigators to make
sure that they don't make faulty payouts so now you can likely see Insurance is
a big business and if you have the right model's ass e the right kinds of risk
and have good investigators to make sure that you are not defrauded well then
you can make a lot of money conversely if you buy Insurance and something bad
happens it can save you a lot of money in most cases.
Insurance is a winning formula for all parties involved it helps
cons ers be less worried about bad events and it makes companies a lot of money
and that's basically how Insurance works see I told you it was going to be
interesting maybe hopefully that was interesting otherwise I don't
know why you're still here but we have more
videos that you could probably click on right here that might be interesting or there's probably if you're just tired of hearing my voice you could click
over to the right there are probably other people's videos but enjoy your day
thanks for learning about Insurance.
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