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How do insurances work?

Insurance exists because people are exposed to different risks that can cause damage to their physical integrity or property. These risks can be caused by people, by third parties, or by nature.

Insurance is part of the actions that can be carried out to manage risks, in fact, it is the most economical and effective option. So, insurance works as a protection mechanism that allows the person to transfer their risks to a third party, in this case to the Insurer (insurance company).

Policies are contracts through which the insurance company undertakes, in the event of a loss (covered by said contract), to indemnify the damage caused or to pay the capital, rent or other agreed benefit. All this in exchange for charging a premium (insurance price).

Regularly these are the people involved:

  • The Insurer: It is the insurance company.
  • The  Buyer : It is the person or company that contracts the insurance and pays the premium.
  • The  Insured : It is the person exposed to the risk covered by the insurance contract.
  • The  Beneficiary : It is the person or company that has the right to receive the compensation agreed in the contract.

The buyer, insured and beneficiary can be the same person, or different people. Other important terms:

  • Policy : document that the company delivers to the insured and in which the conditions of the insurance contract appear.
  • Premium : is the value or price of the insurance.
  • Coverage : risks that are protected by insurance for which compensation is paid.
  • Claim : is the occurrence of an event covered by the policy.
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