Insurance: How Does it Work and What Risks Can Be Insured?

Insurance is an  effective means of protecting  individuals against the consequences of risks. It is based on  transferring them to an insurer  that is responsible for repairing or indemnifying all or part of the damage caused by the appearance of certain accidental situations.

It is a  very useful and widely spread coverage formula in modern society. It implies paying an amount ( insurance premium ) and receiving in exchange economic compensation or a service whenever a situation contemplated in the policy arises.

Insurance, what are they and how do they work?

Insurance How Does it Work and What Risks Can Be Insured

Appropriate risk management involves a  combination of various actions  aimed at protecting people and their assets. Some of the actions that can be carried out are:

  • Prevent the occurrence of situations that cause damage.
  • Keep the goods in proper condition.
  • Save to rectify possible future damages.
  • Have healthy lifestyle habits.
  • Etc.

Insurance is part of the actions that can be carried out for risk management, in fact, it is the most economical and effective option. But we must not forget that none of them, by themselves, offer complete security.

In addition, business activity could not function if insurance did not exist, which transforms the unpredictable and variable costs derived from risks into assumable fixed costs, such as premiums.

Insurance  is based on sharing the damage among a very large number of people with the same or similar protection needs. Thus, when an event occurs that causes specific damage to one of these people, all the others also participate in its repair through the premiums they pay for their insurance policies.

For the proper functioning of this mechanism, insurance entities must adequately carry out the following tasks:

  • Gather a large number of people to guarantee the system.
  • Correctly calculate the expected accident rate, to have stability.
  • Manage the process, assisting the insured at all times.

What risks can be insured?

In the insurance market there are very varied insurances depending on the needs of consumers, however, not all risks can be insured. Before taking out insurance, it is necessary to know that only those risks that:

It is not possible to know with certainty if they will occur or not, or when

  • Certain risks in the home can be insured because it is not known if or when they will appear; but, generally, damages due to lack of maintenance or as a consequence of the effects of the passage of time (for example, leaks produced as a result of the natural oxidation of an iron pipe) cannot be claimed.
  • In the case of car insurance, the driver does not know if he is going to have an accident.
  • In life insurance, people are known to die, but what is unknown is the exact moment when that will happen.

be possible

  • It is possible that a water pipe in a house breaks. Therefore, you can take out home insurance that guarantees a response to any damage that may occur.
  • It is possible that a vehicle suffers or causes some type of damage. Therefore, they can be insured. In Spain it is mandatory to take out civil liability insurance for vehicles, to which other voluntary coverage can be added.
  • Insurance cannot be taken out “against the attack of a household appliance” because it is impossible for this event to occur.

Are concrete, that is, they can be accurately described

  • The risks to which a home is exposed can be accurately described and are therefore insurable. However, something as imprecise as “all damages to the home are insured” cannot be defined in a home insurance policy, without specifying the type of home and its characteristics.
  • You cannot take out trip cancellation insurance by simply indicating “that you are going to take a trip”. Their particularities have to be described.

Its object is legal, and that they are not detrimental to third parties

  • The risk of driving under the influence of alcohol is not insurable as this is an illegal activity.
  • It is not possible to contract merchandise transport insurance if the merchandise to be transported is drugs; drug trafficking is not a legal activity, therefore, the risk of its transportation is not insurable.

Are fortuitous, that is, outside the human will to produce it

  • Damage to a car cannot be claimed through insurance if its owner intentionally crashes it.
  • You cannot deliberately leave the taps open in a home and claim the damages caused.

What does auto insurance protect?

Auto insurance protects (i) people: those who are inside the vehicle and those who are affected by its action; (ii) to the vehicle: protects the damage that the car may suffer, as a result of an accident or a sinister, as well as the theft of the car; and (iii) property of third parties: it also protects the property of third parties that are affected by the vehicle due to an accident or loss.

Features of car insurance

Auto insurance, although they may vary in detail, have certain characteristics in common that can be easily identified, among them we have:

  • The type of coverage: As we will see in the next section, you have the option of choosing which type of coverage to choose. Civil liability is mandatory, so it is the minimum you must acquire, but it will not cover additional important costs at the time of an accident. See the next section to learn more about the different options.
  • Initial costs: This is where the deductible comes into play, which is the initial payment you make before the insurance company pays for the damages. You can pay a lower deductible but, at the same time, the premium (that is, what you pay) will be higher.
  • The maximum payment: this is the total value that your policy will cover, that is, if the damages caused by an accident in which your vehicle has been involved are equivalent to 500,000 pesos and your policy has a maximum of 400,000 pesos, 100 pesos. an additional thousand will be on your account.
  • The claim terms: this is the procedure that you must take into account to make the request to the insurer so that they pay you the money. You must be very clear about the policies of your insurer, since it is possible that you can only make the request within a specific period after the accident.

Types of auto insurance

Auto insurance types can be set by your coverage. In general terms, auto insurance coverage can be BroadLimited or only Civil Liability.

Civil Liability

In most countries, including Mexico, there is by law a basic insurance that is mandatory and covers the Civil Liability of the driver or owner of the vehicle in case of harming a third party using said car. In Mexico it is mandatory to have Civil Liability insurance when traveling on Federal Highways as of January 1, 2019.

The regular Civil Liability insurance covers damages to affected third parties for a value of 100,000 pesos and an additional 50,000 for physical damages to third-party occupants of the other vehicle involved in the accident. However, if the costs exceed this value, you will have to bear them.

It is possible to know if a vehicle has an auto insurance policy that covers the requirements of compulsory insurance; for this, the AMIS (Mexican Association of Insurance Institutions) offers the service free of charge here.

The civil liability insurance does not include coverage against damage to the vehicle, roadside assistance or legal expenses; To access these, there are car insurances with limited and broad coverage, which are not mandatory but are very convenient.

Limited Coverage

Limited coverage, for its part, is a type of insurance that includes the most basic coverage, although its main objective is to cover damage caused to third parties due to an accident and theft of the insured vehicle.

Limited coverage never covers damage to the insured vehicle.

Comprehensive coverage

Comprehensive coverage is the type of insurance that has the most coverage. Covers the civil liability of the driver or the owner, in addition to the total or partial loss of the vehicle, roadside assistance, medical expenses for the occupants, legal expenses and many other additional expenses incurred by the insured.

We always advise listing with multiple insurers, which you can do here at Kayum; And if what you are looking for is car insurance for Uber, you can quote it here, to find out which insurance is best for you, since they can offer different options and different price ranges.

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