¿What is insurance and how does it work?

¿What is insurance and how does it work?

Insurance is contracts whereby, in exchange for collecting a premium (insurance price), the insurance Company undertakes, in the event of an accident covered by the contract, to indemnify the damage produced or to satisfy a capital, income or other Agreed allowance.

Terminology

A special terminology is used in the insurance world. To understand the characteristics and functioning of these products, first understand the meaning given to the following words:

People involved

• The insurer: is the insurance company. In exchange for collecting a premium, it assumes the obligation to indemnify the insured or beneficiary a certain amount of money, in the event of a certain event occurring (contingency).

• The policyholder: is the person or company that contracts the insurance and pays the premium.

• The insured: is the person exposed to the risk covered by the insurance contract. The risk may fall on the person of the insured, on the property that it possesses an economic interest or on its globally considered patrimony

• The beneficiary: is the person or company that is entitled to receive the consideration agreed upon in the contract.

The policyholder, insured and beneficiary could be the same person, or different people.

Other terms

• Policy: This is the document in which the insurance contract is embodied. It contains the regulation of the same and is composed of general, particular and special conditions.

• Premium: The price of insurance

• Insured sum: The amount fixed in each of the agreed coverages and constitutes the maximum limit of compensation payable by the insurer, in case of contingency or loss.

Contingency/Casualty: The event foreseen in the policy and that gives rise to the fulfillment of the obligations of the insurer. The production of the contingency or loss gives rise to the agreed indemnification. (Examples of contingencies: death, sickness, fire, accident, etc.)