Insurance is a formal engagement or form of contract where one party (the insured) pays premiums on a given periodic understanding to another party (the insurer) so as to be provided with financial protection or reinstatement in case of losses accruing from risk occurrence. The insurance company operates by pooling risks from various clients and is therefore able to compensate any of the insured in the event a damage occurs. The risk of financial loses mainly arise as a result of damages which may be caused to the person insured, their property or damage to a third party. The insuring company absorbs the risk from the insured thereof.
There are many and valid types of insurance policies either classified as personal insurance policies, business insurance policies and other specific needs policies such as professional liability insurance, kidnap and ransom insurance .Under personal insurance policies, include life insurance covers, auto insurance , health insurance and homeowners insurance. In some countries such as USA, it is made mandatory to adopt at least one of the policies. The business insurance policies may vary depending with the type of risk the business wants to be coveredagainst. These may include fire, natural calamities, burglary, transit, freight among others.
The insurance policy comprises of two key components which are the premium and deductibles.It is the offer defined by these two components that helps an individual or a business entity to determine the type of policy that best suits it needs. The premium is the amount the insured is obliged to pay to the insurer on a given periodic basis mainly monthly. The amount of premium is normally charged basing on the risk profile of the individual or the business. Deductible on the other side is the extra amount to be incurred by the insured to cater for the losses and normally depend on type of insurer and the policy.