What is general insurance?
General insurance helps us protect ourselves and the things we value, such as our homes, our cars and our valuables, from the financial impact of risks. Risks such as fire, storms, theft, car accidents, illness, or travel. It can even protect us from the costs of legal action against us. We have the ability to choose the types of risks we wish to cover by choosing the right kind of policy with the features we need.
How insurance works
Insurance can help us financially recover if a risk should damage the things we value.
Insurance can’t prevent something from going wrong, but it can help protect you and your assets from the financial risk if something does happen.
A risk is the chance that something harmful or damaging will occur and leave you facing a loss (such as an auto accident). Insurance spreads the cost of risks among a large group of people who share similar risks.
When you buy an insurance policy, you pay a premium. This joins the premiums of many other policyholders in a big pool of funds. The pool of funds can be used to help you if something unexpected does occur and your policy covers your claim.
If something unexpected happens to property you’ve insured, you can lodge a claim with your insurer. If you have bought the right coverage in your policy, the insurer will assist you through rebuilding or repairing your property, replacing your possessions or providing other compensation.
The reasons people buy insurance
Most people buy insurance for six reasons:
- To protect something they’ve purchased that has high value. This may be a house, a car, jewelry, etc. Items that would be too expensive to replace. Often a loan has been taken out to purchase these types of items.
- To protect their property and possessions against disaster, such as a fire or flood.
- To protect them when they are doing something not covered by their normal insurance policies, such as traveling overseas.
- To provide financial protection if sued, such as if a visitor should sue you for negligence after injuring themselves on your property.
- To fulfill long-term and short-term financial planning goals in the event of death or terminal illness.
- To help pay for illness and health maintenance of you and loved ones.
Types of Insurance
Below are a few of the most common types of insurance purchased:
- Home Insurance
- Car Insurance
- Contents Insurance
- Renter Insurance
- Boat Insurance
- Travel Insurance
- Business Insurance
- Liability Insurance
- Motorcycle Insurance
- RV Insurance
- Pet Insurance
- Farm Insurance
- Personal Item Insurance
- Flood Insurance
- Consumer Credit Insurance
- Medical Insurance (Health/Dental/Vision)
- Workers Compensation
- Life Insurance
- Disability Insurance
- Long-Term/Short-Term Care Insurance
There really is no one formula in calculating a premium or price for each person who wants to cover risks on something valuable to them.
For example, when you apply to insure your car for a property policy, we will decide how much that particular car is worth (market value) and what risks are worth insuring. Insurers refer to known data when they make these decisions. If the car is kept in the suburbs with higher rates of car theft, you will be given a higher level of risk and, therefore, pay a higher premium.
Insurers also look at age, sex, and claims history. This is due to demographic statistics as well as the driver’s personal driving record. Most insurers will take into account whether you’ve been at fault in other accidents or other traffic offenses.
Insurers must also decide how much coverage will be offered, unless you nominate a value, and in some circumstances may not offer insurance if they believe the risk is too high. You may also have a choice about some aspects of the policy, such as the amount of excess and optional extras.
Why Premiums Change
Your premium is likely to change each time you renew your insurance. This is because premiums are affected by many factors, including the cost of doing business and changes to the way your risk is assessed.
Sometimes premiums go up across the board and sometimes it might go up because your level of risk has increased. There are different reasons your premium may change, including:
- A reassessment of your individual risk
- Changes you make that reduce your risk
- The number of claims experienced
- Large scale claims
- Investment returns
- Regional and global changes that affect availability
- The value or quantity of what you are insuring
- The insurer’s cost of doing business
It’s important to tell your insurer if you’ve made changes to reduce risk, such as installing a car alarm. You can also ask your insurer about what you can do to lower your premium.
INSURANCE PRODUCTS ARE NOT DEPOSITS, NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY EXTRACO BANKS OR ITS AFFILIATES, AND MAY GO DOWN IN VALUE.