In insurance, the insurance policy actually is a legally binding contract between the insured and the insurance policy holder, that actually determine the covered claims that the insurance policy holder is legally obligated to cover. In return for an initial premium, commonly called the initial premium, by the insured, the insurer promises to compensate for financial loss caused due to perils specifically covered in the insurance policy’s language. The insured can make additional payments known as the cost of loss payment to the insurance company. Payments are usually made on an annual or biannual basis, with each insurer having their own terms and conditions as to what is meant by a loss of business or loss of income. Some companies also have profit sharing programs, where some of the premium payments go towards the profits of the company, while others go towards the long term care of an insured person.
There are several kinds of insurance policies, all of which have their own characteristics, coverage limits, and payment schedule structures. There are also several factors considered by insurance companies when determining the level of premium they will charge on a particular type of policy. One such factor is the risk of loss. For instance, if an insured person lives in a low risk area that is not prone to natural disasters, his or her premium will be lower than one who lives in an area prone to natural disasters and whose home and property may be at risk of such disasters. Another factor that influences the level of premium is the type of risk associated with a given insured person and his or her lifestyle.
If an insured person engages in certain risky activities, such as diving or skydiving, or if his or her lifestyle poses a threat to the general safety of others, his or her premium will be higher than the premium charged to someone who engages in much safer activities. Insurance policies also protect the interests of the insurer if the insured engages in activities that are deemed risky by insurers, but that would be risky for the general public if those activities were undertaken by others. Examples include activities that result in the death of a third person, such as car crashes or mountain climbers. In these cases, the insurers may refuse to insure the insured and therefore refuse to compensate him or her should he or she die in an accident.
