How Insurance Works

In this report we will explain how insurance works. This report will explain what insurance is, the benefits,

the types, & what they cover. Though we will not go into detail on everything we will touch on most

everything.

Insurance is a type of risk management. It is an agreement in which people pay a company for protection

against loses. This helps people save themselves from a major disaster. When you buy insurance you pay

a premium. The premium is invested so that the insurance company can make money. At ALFA

Insurance in Gulf Shores the premiums you pay are invested in different ways. 5% is invested into Junk

Bonds, 20% is invested into stock, & the remaining 75% is invested into real-estate. Insurance is a shared

risk. A shared risk is the spreading of a major risk over many people by accepting certainty of a smaller

cost.

Although there may be hundreds of polices out there, there still isn't a policy that covers everything. If

your looking to insure an automobile you would buy car insurance, but you can't buy any type of car

insurance that would cover your house! There are polices that cover your house, car, outdoor structures,

your life, ect., ect.; but not a one covers everything that the other does! This is why many people have to

buy a multitude of polices to cover what they want insured.

For something of yours to be insured you have to own something of value. The object is usually

appraised before it is insured to find out the correct amount it should be insured for. This means that if

you own a car that is appraised for $16,000 but insure it for $20,000. Then one day you have a wreck.

You wouldn't get $20,000 for it, you'd only get $16,000.

There are many benefits of insurance. One is that you only have to pay a part of a major loss & not the

whole thing. When losses are paid for by insurance companies & people are able to continue & support

the economy.

There are many different types of insurance. Each insurance policy covers a different thing. Property

insurance is placed on houses, automobiles, or other property to protect consumers from loss to their

possessions such as if your house burned down. Liability insurance protects consumers from the cost of

damage they may do to another's property or from injuries they cause them. That means if you carry this

policy & you back over someone's leg with your truck & break their leg then the hospital & related bills

would be covered. Personal insurance protects you or your relatives from loss related to your health or

physical condition such as if a sales person tripped on a crack in your sidewalk.

Companies benefit from insurance in different ways. If a consumer files a suit against a company for a

defective product & wins then the insurance company will pay the loss. Or if a hurricane destroys a

companies' plant, such as Andrew did, then insurance will pay the company the amount of money lost

unless the cost exceeds the coverage of the policy. If this happens then the insurance company will pay

the policy amount & then the other company will have to pay off the rest of the loss on its own.

You need to know how to choose an insurance policy that fits your needs. Liability insurance only pays

for bodily injuries & property damage suffered by others as a result of the actions of the injured party.

Personal insurance is insurance that protects people from losses due to illness or injury. Property

insurance is a policy that protects people from losses to their property. These insurance policies cover

different actions, but not each other.

When choosing an insurance company make sure the agent your dealing with is a good one. The agent

should know everything about the policy he or she is trying to sale. If not then the agent is probly not a

good choice. The agent should also be honest. If the person doesn't look you in the eye & keeps looking

around the room to avoid you then they are probly not honest. The agent should also tell you the down

sides of a policy as well as the limitations.

As you are choosing an insurance policy you need to be sure you are buying the right amount. If you

insure a $100,000 house for $70,000 & it burns then you would only get paid $70,000 even though it was

worth $100,000. You would lose $30,000 because of your ignorance of paying a higher premium.

The information provided in this report is intended to help when it comes to start buying insurance. This

information should help you find a good insurance policy that fits your needs & keeps you from being

cheated.

By Tim Williamson (cooler@gulftel.com) & Jason Eberly