Insurance in simpler terms can be defined as the contract between a company and the individual where the company agrees to pay the individual a certain amount of compensation. This is paid under various scenarios like any illness, property damage, accident or death provided the policy holder pays the premiums agreed upon in the contract. In certain cases the company also becomes liable to pay in an event of damage or injury to a third party.
Let us look at a knowhow of how auto insurance works
Now in case of auto insurance you will have something to depend upon in the scenario of an accident. Since it is a contract between you and the insurance company you pay the timely premium and they pay for your losses. In a way it is a financial protection for your car in case of physical damage or theft. Similarly for health insurance they have the capacity to cover medical and surgical expenses of the insurer. With medical costs touching the sky it is imperative for an individual to have a health insurance.
Be it health, auto or home insurance it is important to understand the terms of the contract properly before buying one. Two of the important components that need a thorough understanding are premium and deductible. The former is basically a price paid monthly depending upon your risk profile. The premium charged by different companies can vary for a similar insurance policy. The deductible component of the policy is the minimum amount that the insurers are required to pay out of his pocket. This can vary as per the insurance policy type. For example when the deductible is high the cost of the policy tends to be cheaper. Hence choose a policy as per your requirement and always have a thorough understanding of its components.