Basic Knowledge of Insurance

Insurance is a financial mechanism that provides protection against various risks. It involves an agreement between an individual or entity (the insured) and an insurance company (the insurer). In this agreement, the insured pays a regular amount called a premium to the insurer in exchange for the insurer’s promise to compensate for financial losses or damages that may occur due to specified events or risks.

The insurance company pools the premiums from many individuals and uses that collective pool of funds to cover the losses of the few who experience covered events. This spreading of risk enables individuals to protect themselves financially from potential losses that could be substantial and difficult to bear alone.

There are different types of insurance products designed to cover various aspects of life and property. Some common types of insurance include:

  1. Life Insurance: Provides financial support to the beneficiaries of the insured in the event of the insured’s death.
  2. Health Insurance: Covers medical expenses and provides financial support for healthcare services.
  3. Auto Insurance: Protects against financial loss due to damage or theft of vehicles and may also cover liability for accidents involving the insured’s vehicle.
  4. Home Insurance: Offers protection against property damage or loss, including damage caused by fire, theft, or natural disasters.
  5. Travel Insurance: Provides coverage for unexpected events during travels, such as trip cancellations, medical emergencies, or lost baggage.

The terms and conditions of each insurance policy, including the coverage amount, premium, and exclusions, are outlined in the insurance contract. Insurance serves as a safety net and helps individuals and businesses manage risks and protect their financial well-being in the face of uncertainties.


Insurance is necessary for several important reasons:

  1. Risk Management: Life is full of uncertainties and risks. Insurance provides a safety net by mitigating the financial impact of unexpected events, such as accidents, illnesses, natural disasters, or property damage. It helps individuals and businesses manage these risks effectively.
  2. Financial Protection: Insurance ensures that individuals and families have financial support during difficult times. In the event of an insured event, the insurance company provides compensation or coverage for the loss, reducing the burden on the affected parties.
  3. Peace of Mind: Having insurance gives people peace of mind, knowing that they have a backup plan in case of emergencies. It allows them to focus on their daily lives and work without constant worry about potential financial hardships.
  4. Legal Requirement: In many cases, insurance is required by law. For example, auto insurance is mandatory in most countries to drive legally on public roads. Health insurance mandates may exist in some places to ensure people have access to medical care.
  5. Protection of Assets: Insurance protects valuable assets like homes, cars, and businesses. It enables people to recover financially from unexpected losses, such as fire, theft, or natural disasters.
  6. Social Welfare: Insurance plays a crucial role in social welfare. It provides financial support to families after the death of a breadwinner, supports medical treatments, and helps in disaster recovery efforts.
  7. Business Continuity: For businesses, insurance is vital to ensure continuity and protect against potential liabilities or damages that could otherwise lead to financial ruin. It helps businesses recover from unexpected events and avoid bankruptcy.
  8. Loan and Mortgage Requirements: Many lenders and financial institutions require borrowers to have insurance, especially for significant loans like mortgages. It safeguards the lender’s interests and ensures repayment in case of unforeseen circumstances affecting the borrower’s ability to pay.
  9. Shared Risk: Insurance operates on the principle of pooling risk. When many people contribute to an insurance pool through premiums, it spreads the risk and reduces the financial impact on any individual when an insured event occurs.

In summary, insurance is necessary because it provides financial security, risk management, and peace of mind for individuals, families, and businesses. It helps protect against unexpected losses, ensures compliance with legal requirements, and contributes to social welfare and economic stability.


Getting insurance is a straightforward process. Here are the general steps to obtain insurance:

  1. Assess Your Needs: Determine the type of insurance you require based on your specific needs and circumstances. For example, you may need health insurance, auto insurance, home insurance, life insurance, or other types of coverage.
  2. Research Insurance Providers: Look for reputable insurance companies that offer the type of insurance you need. You can research online, ask for recommendations from friends or family, or consult with insurance brokers or agents.
  3. Compare Policies: Obtain quotes from multiple insurance providers and compare the coverage, premium costs, deductibles, and other terms and conditions. This will help you find the best policy that suits your requirements and budget.
  4. Choose the Right Coverage: Select the insurance policy that provides the necessary coverage for your needs. Ensure that the policy includes all the essential features and add-ons you may require.
  5. Complete Application: Fill out the insurance application accurately and honestly. Provide all the necessary information requested by the insurance company. The application may be submitted online, through an agent, or directly to the insurance company.
  6. Underwriting Process: After submitting the application, the insurance company will review the information provided and assess the risk associated with insuring you. This process is known as underwriting. Depending on the type of insurance, the underwriting process may involve medical examinations, inspections, or other evaluations.
  7. Receive the Policy: Once the underwriting process is complete and your application is approved, you will receive the insurance policy document. Review it thoroughly to ensure that all the details are accurate and match your requirements.
  8. Pay the Premium: To activate the insurance coverage, you need to pay the premium amount as specified in the policy. Premiums can be paid in various ways, such as monthly, quarterly, semi-annually, or annually, depending on the terms of the policy.
  9. Maintain the Coverage: Keep your insurance policy in force by paying the premiums on time and adhering to the terms and conditions outlined in the policy. It’s essential to renew the policy before its expiration to ensure continuous coverage.

Remember, it’s crucial to be honest and transparent when providing information during the application process. Any inaccuracies or omissions could lead to claim denials or policy cancellations in the future. If you have any doubts or questions about the insurance policy, don’t hesitate to seek clarification from the insurance company or an insurance professional.