Insurance works on the principle of pooling capital. Premium deposited by many is utilized for the financial safety of few during emergencies. All your premium money goes in to a single reservoir of the company. The claims of the few are paid from that pool. There are more people contributing to the pool than making claims be it a minor or a major claim. In India the Insurance Regulatory and Development Authority (IRDA) protects the policyholders by ensuring that enough reserve capital is always maintained by the insurers to easily settle claims.
Re-insurance
Sometimes natural calamities like earthquake and ice storm force the insurance companies to rely on reinsurance. During these large disasters it is possible that a given insurance companies pool money can be emptied. However at these trying times, insurance is most important for the customers and the insured should not have to worry about settlement of claims. In such extreme situations your claims will be settled from another pool of money through re-insurance. Insurance companies utilize part of your policy premium for re-insurance (insurance for insurers). Reinsurance is a kind of extra layer to protect insurance companies from unforeseen financial emergencies.
How are premiums fixed?
Your premium is calculated considering the probability of claims you make in future. Depending on the likelihood of drawing funds from the pool your premium is fixed. There is a general misconception that those who never make claims pay less or no premium. It is true that the past claims history of the insured is essential to maintain claims statistics. Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries work to assess risk in the insurance through statistical methods.
Profit for insurance companies
Insurers do not make money out of premiums collected. There will be difference of amount between premiums collected and claims settled. That difference amount is generally used to pay for administration maintenance (like phone bills, electric bills etc), salaries for employees and taxes. Insurers cover you for only those types of losses during emergency as mentioned in the policy. It is advisable that you read the policy thoroughly or interact with the representatives to find out coverage details before buying.
Online insurance policy
Online purchase of insurance plan enables you to comprehend the nuances of different insurance products. E India Insurance website allows you to access several insurance plans by prominent insurers. It is very convenient to buy online insurance policy because there is no need of any paper work. You can make instantaneous purchase after comparing different policies offered by various insurance companies. Added to this you don’t have to consult any agent to purchase online insurance policy.
