The purpose of an insurance policy and coverage explained
The purpose of an Insurance Policy and Coverage Explained
First, we need to understand the purpose of an insurance policy; an insurance policy is an agreement between you and the insurance company. You agreed to pay a premium for this coverage and protection is provided by the policy and in exchange, the insurance company agrees to pay referral losses covered by the policies such as fire damage.
Insurance policies are not meant to cover all expenses, that’s why insurance policies include a deductible; the deductible is the amount you have to cover out of your own pocket when a loss occurs.
If you’re like most people you probably have enough money saved up to replace or rebuild large assets after an unforeseen occurrence like losing your home or business and everything inside to a tornado or fire. On the other hand, you could probably afford to pay for a few hundred dollars out of pocket to repair minor damages.
By avoiding the smaller losses, your insurance company can offer you coverage at a lower rate and still protect you from larger and financially devastating losses. Deductibles apply separately to each claim.
Another important thing to know is that the amount of your deductible has an impact on the premium. For instance, the higher the deductible, the lower the premium.