How Do Insurance Work?

When a person purchased an insurance policy, the premiums of the policy is incorporated into what is called the insurance pool. In the pool, a large number of people participated. New members join, old members died or cancel participation. Each member was promised by the insurance company will pay a sum of money when the insured loss occurs, provided that the premium obligations have been paid.

The participation of a person in an insurance program tied in a legal contract called an insurance policy. In the policy is explained in detail all the rights, responsibilities and obligations of the policyholder / insured and insurer. If a person suffers a covered loss under the policy, he filed a claim. The claim is a complete report losses and value. The amount of money paid to someone based on losses that occurred and the maximum limit that can be given according to the policy.

What if you lose / die soon after buying the policy?

Insurance companies doing business takeover or management of risk. When you buy life insurance, for example, insurance companies certainly hope you live long to be able to pay all the obligations of your premiums into the pool. However, insurance companies also know that there is a possibility you die shortly after paying the first premium. In this case, the insurance company pays far greater risk than you contribute.
To measure this risk, insurance companies use statistics to predict the number of people who will actually died / suffered losses and make a claim within a period. Insurance companies are not able to know when certain people in the pool will run the risk, but they can estimate the number of people who will die / lose in the first year, next year and beyond. Since most people who participate insured did not file a claim, the insurer may pay the claims that nominal much greater than the premiums received from policyholders.
These statistics also help to determine the amount of the premium. Insurance companies collect information about the insured to be able to classify them according to the same risk characteristics and calculate the level of premiums based on risk groups. Those who have the same risk pay the same premiums. This process is known as risk classification or underwriting. Wearing appropriate risk premiums, the insurance company can do justice to all policyholders.