What Is Personal Insurance?

Personal insurance lines are types of insurance you buy to protect you from risks that could create financial losses that you would not be able to afford to cover on your own. Personal insurance relates to risks that you as an individual may face, due to accidents, illnesses, death, or damage to property you own.

How Does Insurance Work?

When you buy insurance, you normally will pay an agreed-upon amount — the premium — to the insurance company in exchange for protection from listed risks. In exchange for the premium you pay, they agree to compensate you for losses, should one occur. Personal Insurance is based on the principle that spreading risk of an economic loss (such as a fire or theft, for example) among many people makes the risk manageable for all.

Many people pay into the protection from the loss via their insurance policy premium. The premium is collected by the insurance company and when it comes time to pay a claim, they take money from that “collection” to compensate the policy holder.

Does Everyone Have to Buy Insurance?

Everyone does not have to buy insurance, but it is a good idea to buy insurance when you have a lot of financial risk or investment on the line.

Depending on the type of insurance, some insurance is optional while other insurance like car insurance, may have minimum requirements set out by law.

Why Does the Bank Require Insurance?

Although some insurance may not be a legal requirement, it may be a requirement of a lender or bank or mortgage company.

Depending on the type of insurance, you may “have” to buy insurance in order to get a loan. Insurance is often a requirement of obtaining financing for large purchases like homes because the lenders want to make sure that you are covered against risks that may cause the value of the investment to disappear before you have paid it off.

Getting a Better Price on Insurance

The premium is the amount of money you will be charged by an insurance company (usually on a monthly basis) in exchange for the financial protection provided to you by your insurance policy.

To lower your premium, the best thing you can do when choosing insurance is to shop around with different companies, or use an insurance broker who can do the shopping for you and see which insurance company can give you the best rate for your insurance. Based on the claims experience and underwriting of the insurance company, the rates will vary.

Some insurance companies may have discounts geared at attracting their profile of client. How well your profile fits the insurer’s profile will determine how good your rate will be.

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