Imagine paying a monthly/yearly fee to a company to cover your health, life, business and properties etc. In the event of a loss, the company pays for financial damages. This simple concept is what is referred to as Insurance.
Insurance is a contract protecting an entity against a loss, guaranteeing reimbursement from the insurer when a loss event takes place.
The insured pays the insurance company regular amounts usually per month or year. The insurer provides cover against risks insured. Almost anything with value can be insured from property to domestic animals depending on an individual’s priorities and financial capability. This being said, 3 main types of insurance are most vital as outlined below;
The 3 Most Essential types of insurance:
Life Insurance
Life insurance is a type of insurance that pays out a designated beneficiary a sum of money in the event of a death or after a set of time elapses. It safeguards your family’s financial wellbeing in case you die an unexpected death.
Regular premiums are paid out to the insurance company for a fixed number of years and the insurance company consequently pays a sum assured to the beneficiaries if you die during the policy tenure.
Life Insurance is categorized further into different life insurance options. Term insurance, for example, provides higher coverage for a lower premium amount as compared to other life insurance policies. However, if the insured survives the term, he is not entitled to a payout.
Life insurance policies like endowment have a higher premium compared to the coverage but after the policy tenure ends, you receive payment.
The table below summarizes the difference between the 2;
NB: It is important to know the main features of these insurance policies. The above is just the general difference. Some other features such as having an investment aspect to it and or a personal accident cover may be something to look into.
Liability Insurance:
The purpose of liability insurance is to cover properties, cars, businesses, etc. How this works is that in the event of any damage to the insured entity in the duration of the policy tenure, the insurance company financially compensates the owner of the policyholder. It’s important to note that businesses require special types of insurance for specific types of risks faced by a particular business.
It is important to know that the insurance is on the hazard and not the loss. E.g if you insure a building against fire, the insurance will only pay out a loss caused by fire. If an earthquake brought the house down, that would not be paid. So again, you need to be very vigilant on what insurance is being taken and the details.
Health Insurance:
Health or Medical Insurance is a type of insurance that pays for health-related costs incurred by the insured. These may include outpatient visits, vaccines, surgeries, prescription drugs, and sometimes optical and dental. Health insurance eliminates compromising on getting the highest quality healthcare for your family because of cost.
In this type of insurance, the insurance company bears the cost of medical treatment, illness-related expenses such as hospitalization, prescription drugs, outpatient services etc. In return, the insured pays a regular premium. Aside from exceptions by different policies, your medical bill should be directly settled between the insurance company and the hospital.
Importance of Insurance
The pandemic had a negative ripple effect in addition to rising infections and death rates. Employee lay-offs and job losses have left people’s incomes in distraught. This is why Insurance is now more important than ever before. Insurance can offer you peace of mind to concentrate on things that matter most to you, reduces stress levels, and increase or at least stabilize your financial status.
Conclusion
Getting the right insurance should be a very meticulous affair. Many people get the wrong type of cover and they end up on the short end of the stick due to lack of proper due diligence.
When deciding on an insurance policy, it’s essential to pay attention to (i) Premium, (ii) Co-Pay/Deductible, (iii) policy limit, (iv) what the insurance actually covers, and (v) company due diligence. Additionally, it’s essential to understand how insurance works.
Premium – This is the price of a policy usually per month i.e. What the individual pays to receive coverage. This is usually a fraction of the cover. Say you insure your car’s value of KES 1,000,000, the insurance will require payment of say KES 40,000 per year for this cover. If you get an accident and say you only paid the KES 40,000 for the first year, you will be compensated for the entire KES 1,000,000. How do they do this? Well, Insurance works on pooled investment in that 100 other people have insured their vehicles for the same, and granted only a few will have a loss event. So they have the capacity to pay since not everyone will claim.
Policy Limit – This is the maximum amount paid by the insurer under a policy for a covered loss
Co-Pay/Deductible – This is the specific amount a policyholder must pay from their own money before the insurer covers the claim
What the insurance actually covers – Like stated above, it is important to know that the insurance is on the hazard and not the loss. E.g if you insure a building against fire, the insurance will only pay out a loss caused by fire. If an earthquake brought the house down, that would not be paid. So again, you need to be very vigilant on what insurance is being taken and the details
Company Due Diligence - Shop around many companies and also look into customer testimonials on quality and speed of service. Denying claims is in the business model of insurance companies so it is important to see the company’s history on claim payments. Insurance agents are in the business of making sales, so it is in your best interest to get to know all the details on your policy.
Looking to get any type of insurance, click here for more information to make a more informed decision.
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