What is Insurance?
The first thing that comes to mind when we say “insurance” is usually protection, which we will then instantly link to insurance companies for providing coverage. However, insurance is about protection, and not insurance companies per se. The first line of defense that should protect you is yourself and the measures you take to reduce the chances of facing a risk.
How do I insure myself?
By locking your doors or car to avoid being robbed, you initiate protection against your own risks; you insure so that no one’s able to break in easily. Or, by maintaining a healthy and balanced lifestyle while eating right and exercising regularly, you protect yourself against risks such as heart attacks, blood pressure, and diabetes. Insurance, like many other things in life, evolves with time, and what is recorded in our historical books are some of the many ways and shapes of protection that gradually developed.
For example, Lloyd’s of London is undoubtedly Britain’s best known and most historic insurance institution, which evolved in a rather piecemeal fashion during the past 320 years since its beginnings in Edward Lloyd’s coffee house in the 17th century. The Lloyd’s market developed sophisticated underwriting expertise and the ability to accept risks that no other insurer would entertain. Until the beginning of the 20th century, Lloyd’s specialised in marine cargo, and hull and war risk insurance. Lloyd’s progress was supported from its early years by the assembly of a global network of agents in most ports of the world, which not only helped the insurer with claims settlement and shipping and commercial information, but was also found useful for the British Foreign Office.
Henceforth, insurance companies were formed to protect against the different types of risk. The word “insurance” has also become commonly defined as a means of protection from financial loss.
Insurance companies come second, as they are your additional line of defense. Such defense is as important as the first line of defense; however, insurance companies provide you with defense (protection) against risks that are unexpected. They protect risks that cannot be eliminated or reduced. For instance, you can protect yourself by maintaining a healthy lifestyle, but that doesn’t eliminate the risk of accidents or sickness or even having to undergo surgical procedures. That’s why you need the support of insurance companies. Always remember, insurance is about measures you take to protect while reducing or eliminating the risks of facing a loss.
What do you buy from an insurance company?
You buy a piece of paper. You don’t get anything tangible when you purchase an insurance. You only get policy documents or contracts. In some cases, you are given an insurance card, which comes with a commitment that the insurance company will protect you against certain risks.
The said piece of paper is a written commitment of what you are being covered against, the limits you are covered for, and what the exceptions and exclusions are. Also, the document stands for obligations and liabilities of each party involved – you as an insured and the insurance company as the protector.
Who reads the “documents”?
Almost no one. Start by asking yourself this question – have you ever read and understood your insurance documents before signing up for a particular cover?
Many of us meet up with an insurer and agree to start a cover without even reading the documents. We rely on the insurer to explain; sometimes, we seek relatives’ or an acquaintance’s feedback before accepting or rejecting the cover.
It may just be a piece of paper of commitment, but it is also a form of trust. You accept the cover offered after establishing trust with your insurer. That commitment and trust supersede our duty to read “that piece of paper” before accepting it, which we tend to read only when we are in need. Many of us read the terms and conditions to understand what went wrong and what to do after a claim is rejected or before undergoing a medical procedure.