Insurance is a contract between an individual or business (the policyholder) and an insurance company. The policyholder pays a premium to the insurance company in exchange for coverage against potential risks or losses, as outlined in the insurance policy.
When an unexpected event or loss occurs, the policyholder can file a claim with the insurance company. The insurance company will then investigate the claim and determine if it is covered under the policy. If the claim is approved, the insurance company will pay out a benefit to the policyholder to help cover the costs of the loss, up to the limit of coverage outlined in the policy.
The amount of the premium and the coverage provided by the insurance policy will depend on several factors, such as the type of insurance coverage, the level of risk exposure, the policy limits, and the deductible or co-payment required by the policy.
Insurance companies use statistical models and actuarial science to determine the level of risk and the appropriate premiums to charge for various types of insurance coverage. This allows insurance companies to spread the risk of potential losses among a larger pool of policyholders, which helps to make insurance coverage more affordable and accessible to individuals and businesses.