Published: January 18, 2018

Updated: May 15, 2018



Primarily, Insurance policies function based on several principles. The reason why insurance has become a lucrative business is because there are lots of properties which are subject to losses that can be insured. Insurance companies aim to provide their services to members that fall within a large class. For instance, the class of individuals who own vehicles is large; hence this class is ideal to provide insurance cover. The same applies to life and health insurance.

The loss which insurers must cover should also be accidental without considering the accompanying damages which one may incur during a particular situation. Also, the loss must be defined. For instance, no health insurance policy will cover the bills accumulated as a result of many visits to doctors that cannot be explained.

Two things must be quantifiable in order to calculate insurance deals. These are: the probability of a loss and the cost of that loss. Although there is no scientific way of ascertaining for instance, the risk of a vehicle getting involved in an accident, there are workable methods of arriving at a conclusion. The cost of a loss and the amount an insurance company will need to pay back to its customers needs to be objectively and reasonably calculated.

There are many other methods of protection against loss. One of such methods includes indemnities. An indemnity means that the individual who is suffering from a loss must be willing and have the ability to pay for such loss themselves and then the insurance company will give them a refund of the amount spent.

The way and manner in which insurance work is that an insurance company will decide what kind of insurance policy they will offer. Customers who need these deals will pay for them. They pay an insurance premium. The insurance company, after taking premiums from lots of customers will proceed to do two things. First, they will invest some of the insurance premium in a lucrative market offering good returns on investment. The rest, the insurance company will keep the remainder as a reserve to pay for the losses incurred by their numerous customers. This model obviously operates on the assumption that the number of persons who will suffer losses are far less than the number of customers who pay premium and that these incurred losses are far below the total profit generated from the collection of such premiums. Probability and statistics are used in determining the possibility of a claim being made against the company for their policies.

Insurance claims filed by the insured are the products for which they had paid a premium. Auto insurance reviews have revealed that higher premiums are not always paid to cover a large variety of claims, but in the luxury cars niche market, the insurance premium is a reflection of the price and make of the car itself. So far as renewing insurance policy is concerned, there is no particular market that experiences the most renewals. Renewals are done based on the satisfaction of a customer with a particular insurance policy in relation to the entity being insured. Auto insurance renewals are currently declining; this is not because of poor insurance deals but as a result of reduction in car ownership time and new deals will have to be made with each new car that is bought.