Insurance 101
How does insurance work?
Understand how insurance works so that you can make the decision on whether you need it or not.
4 min read
Insurance
Insurance is something that you buy to protect yourself against losses you will suffer if certain things happen to you, like if your car gets stolen, your house burns down or you get sick or pass away.
What are the main types of insurance?
There are many different types of insurance, but the main types of personal insurance are: • Life insurance, which pays out an amount in the event of your death or on a specified date; • Disability insurance, which pays out a single or monthly amount if you become disabled and can no longer work; • Car insurance, which protects you against financial losses you might suffer as a result of owning a car; • Home and content insurance, which protects you against financial losses you might suffer as a result of owning a house; and • Medical insurance, which protects you against the cost of various medical treatments you or your family might need.
Why do I need insurance?
Insurance helps you to focus on the things that really matter. Rather than worrying about where the money will come from to look after your family if you die or where you will find the cash to repair your car after a crash or how you would rebuild your home if it burns down. By covering these losses, it also allows communities to grow, especially if many people are all affected at the same time, with things like floods, cyclones or widespread fires.
How does insurance work?
When you buy an insurance policy, you are making regular monthly payments called premiums to your insurer. If you suffer a loss that is covered by your policy, your insurer will return you to the position you were in before the loss happened. The monthly premiums that you pay are pooled together with the money received from other policyholders. It is from this pool that any claims you make are paid out from.
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