What is Insurance And How Does it Work

  we're going to talk about What Is Insurance   And How Does It Work? Insurance may not be the most exciting  topic to discuss, but it is really required.   What is insurance, anyway? Insurance is a means  of reducing your exposure to risk. Purchasing   insurance is a way to safeguard yourself against  the possibility of suffering a financial setback.   If something bad happens to you, your insurance  company will pay you or someone else you choose.  It's the annoyance that we all have to pay  to ensure that we don't wind ourselves in   tremendous debt if our home burns down, our  vehicle crashes, or anything horrible occurs.   Insurance gives us peace of mind by ensuring  that if anything awful happens, someone else   will cover the expenses of repairing it. Though  this may seem puzzling to the inexperienced   eye. If you pay $300 a month for home insurance  and your house burns down after just six months,   the insurance company will likely purchase  you a new house for hundreds of thousands of   dollars. On the other hand, you would have given  them a total of only 1,800 dollars.

 Why on earth   would they act in such a reckless manner? 

That  is the power that insurance has, and if you are   interested in learning more about how it works,  then stay tuned because that is precisely what   we are going to talk about in the next section. In general, insurance works on the principle that   a firm, the insurer, guarantees a specific  risk that may or may not materialize,   and another person, the insured, pays the insurer  in return for protection against that risk. When   a group of individuals do the same thing to  mitigate a risk, the likelihood of that risk   occurring is spread out throughout the group  and is relatively constant. Insurance firms   earn money by calculating how much money they  need to bring in to profit on a certain risk   with a specific likelihood. Following this, the  calculation has an effect on the monthly premium   that each individual who is insured must pay. In  most cases, it's just a matter of doing the math,   but insurance companies use quite intricate models  to make sure they're covering all of the bases.

  How do insurance companies work? 

Not all insurance companies provide the same   coverage. The majority of insurance businesses  will specialize in a certain kind of insurance.   This is due to the fact that each  corporation must design a sophisticated model   in order to produce money and assure a profit.  If you assumed that 1 in 100 houses burned down   each year but it turned out to be 5 in 100,  you'd quickly lose money if you insured those   homes. You'd probably overcharge for everyone's  insurance and then be responsible for those four   more residences. There are many insurance firms,  ranging from car to health to life to homeowners,   and the majority of people have these basic  insurance plans, some of which are legally   mandated, such as vehicle insurance. However,  you may be asking why you wouldn't simply save   your money each month and deposit it in a bank  account. That way, even if nothing goes wrong,   you'll have a lot more money. While this is true,  you are the one who is exposed to the danger.   If you set aside $200 every month for  a year to save on house insurance,   you'll wind up with an additional $2,400 at the  end. However, if your home burns down next year,   you'll be out of pocket for the several hundred  thousand dollars it will cost to repair it. If you   think that's a risk you're willing to accept, it  probably isn't. As a result, purchasing insurance   is usually a wise idea. It transfers all of your  risk, concern, and financial load to a much bigger   corporation that can afford it. When you think of  insurance as a way to pay a firm to take on your   risk, You can begin to see how insurance might  theoretically be provided on almost anything. Are   you afraid that when toasting a cinnamon raisin  bagel, your toaster may overheat one of the   raisins, causing it to explode into spontaneous  plasma and obliterate your whole cupboard full of   lucky charms and baked beans? Although it is very  particular, someone could probably insure you for   it. 

Similarly, if you're really gorgeous and are  concerned that if you fall just once, you'll smash   your head, lose your attractiveness, and become  miserable since no one will like you any more.   Someone could definitely cover you for that as  well. This is also not too far from the truth;   since their public persona is a source of revenue,  celebrities often get different parts of their   body insured. However, there are still a few  elements of the jigsaw that need to be discussed,   such as reinsurance and insurance claims. If you like this video, don't forget to like   and subscribe to the channel. Reinsurance  Reinsurance is the term used to describe the  process through which an insurance company will   get coverage for their own policies. This is not  a practical joke. An insurance company realizes   that they are too dependent on home-owners  insurance, which is particularly concerning   given the impending arrival of summer. They might  purchase reinsurance plans to add onto their   existing insurance policies in order to safeguard  themselves against suffering significant financial   losses in the event that all of their houses were  destroyed in a fire brought on by global warming   or another cause. The reinsurance company is  an essential factor to take into account. If an   insurance company covers all of the vehicles  in Florida and a hurricane damages all of them,   the insurance company may end up owing more  in claims than they have available funds   to pay. In the event that they ran out of  money, nobody would be ready to pay for the   destroyed vehicle that they had. In order  for insurance companies to be financially   secure and lucrative enough to pay out claims,  reinsurance is essential and absolutely necessary.  Claims When it comes to claims,   insurance firms do not always pay out. If you have  automobile insurance and show them a smashed car,   the insurance company will look into it  to make sure you didn't crash your car   on purpose to collect a claim. If they find out,  it's considered fraud, and you might face prison   time for falsifying insurance claims. It happens  on a somewhat regular basis. People view it as a   means to either obtain a large cash windfall  or get out of a vehicle or housing payment   that they can't afford if they're in financial  trouble. On the other hand, car insurance   companies use top-notch investigators to make  sure they don't pay out for wrong things.  Therefore, as you can see, the insurance industry  is a significant market in which you have the   potential to make a lot of money provided you have  the necessary models, assume the appropriate kinds   of risks, and have professional investigators  to ensure that you are not being deceived.   On the other hand, if you get insurance  and something terrible happens to you,   it might end up saving you a significant amount  of money. In almost every circumstance, insurance   creates a scenario in which all parties involved  come out ahead financially. It brings in a lot of   money for businesses while at the same time  letting consumers worry less about unpleasant   things that can happen. To a large extent,  it is how the insurance industry operates.  

 what is a car insurance  deductible and how does it work?

Car insurance deductibles. They’re a consideration when you’re  choosing insurance for your vehicle.   But what is a car insurance  deductible and how does it work? Generally, a deductible is the amount you’re  responsible to pay when a covered loss occurs. For example: Say you have a $1,000 deductible  but have $2,000 in covered damages.   You’re responsible for the first $1,000 of damages   and your insurance company is responsible  for the other $1,000 of covered damages. Collision and Comprehensive are the two  most common coverages with a deductible. Collision – This coverage helps  pay for damage to your vehicle   if it hits another car or  object or is hit by another car. Comprehensive – This coverage helps pay for  damages that are not caused by a collision,   like fire, theft, or weather. There are also some other things  to know about deductibles. There are no deductibles for liability  insurance – the coverage that pays the   other person when you cause an accident. Car insurance deductibles apply  to each accident that you’re in.   For example, if you get into three  accidents in a policy period and   have a $500 deductible, you’ll typically  be responsible for $500 for each claim. There are many options around  car insurance deductibles. Talk to your Travelers representative   or independent agent about the  best way to cover your vehicle.