How insurance work

How insurance work

Insurance is a financial product sold by insurance companies to protect you and / or property against the risk of loss, damage or theft (such as floods, burglary or accident).

Some types of assurance that you must withdraw by law such as car insurance if you drive a vehicle; Some of whom you may need as a condition of a contract such as buildings insurance as a requirement of your mortgage; And others are judicious to go out, such as life insurance or savings for a pension.

Although it is a good idea to make sure that you do not pay insurance that you do not need, you should always think about what would happen if a disaster hit and you did not have a blanket for protect yourself.

You can buy insurance policies for many aspects of your life, for example for your health, home, car, business or retirement.

An insurance policy is the contract that you retre with an insurer to protect you from specific risks under the agreed conditions.


How it works

When you buy a strategy, you make regular payments, called premiums, the insurer. If you make a complaint, your insurer will pay for the loss covered by the policy.

If you do not complain, you will not recover your money; Instead, it is brought together with the premiums of other insurance holders who have undergone insurance with the same insurance company. If you make a claim, the money comes from the police bonus pool.

How premiums are calculated

Insurers use risk data to calculate the likelihood of the event you make sure to increase. This information is used to determine the cost of your premium. The more likely the event is to occur, the higher the insurer's risk and, as a result, the higher the cost of your premium.

An insurer will take into account two important factors when exercising the premium they charge.


What is the probability of general terms that someone will have to make a claim?

Is the person who wishes to subscribe a policy a higher or smaller risk than the "medium" insurance policyholder (for example, a high-power young person can be charged a higher premium because they are statistically more likely to be involved in an accident than a mature and experienced driver)?

Only a proportion of subscribers will make a claim over a year.

Standard policy conditions

Although policies have different terms and conditions, there are generally three main principles common in all insurance policies. These included:

The cover is provided for the actual value of the property or the lost or damaged element (its replacement value), but does not include any sentimental value

There must be a lot of similar risks so that the likelihood of a claim can be spread among other policies. It must be possible for insurers to calculate the risk of loss so that a premium can be defined which corresponds to the risk

Losses should not be deliberate

For more information

Read our insurance page for information on shopping around

Read the UK Insurance ABI Guide - The Advantages of Pricing Risk (PDF 1.57MB) To learn more about how insurance work

What is insurance

1. What is insurance?

Insurance is an arrangement with an insurance company in which you pay for regular amounts and they agree to cover your costs if a certain unfortunate event occurs, such as a road accident, damage to property or to the property. disease. Insurance can also be organized for a common event, eg. If you reach a certain age. An event covered by insurance is called insurance event. The person to whom such an event occurs or may occur is called the insured person. When an insurance event occurs (you get sick, undergo an accident, reach a certain age), the insurer will pay you a certain amount of money called insurance / claim paid. The insurance delivery / paid demand will help you or your family to overcome financial difficulties or increase costs that may arise from an insurance event. This means that, by organizing insurance, you get insurance coverage against a certain risk.


Like any other service, insurance is not provided free of charge. The insurer promises to pay you a benefit / claim amount as agreed in the insurance contract, the occurrence of an insurance event. The price you must pay for this service is the insurance premium. The person coming out of an insurance policy and a pay insurance premium is called insurance policy. The insurance premium is payable in monthly, quarterly or annual versions as a general rule, but it can also be paid in one payment.


In addition, the insurer can charge you various fees. As a result, ask the insurer how much you will be required to pay for costs and other costs. This is particularly important in the case of life insurance. Are you aware that life insurance expenses are rather high, especially in the early years?