Insurance Basics You Must Understand

My name is Luke Brown, and I am The Insurance Problem Solver. Today’s article is about insurance basics. I really would like for you to understand more about insurance basics so you can better navigate the complexity (for laymen) of the insurance world.

Understanding Insurance Basics

• Insurance is a contract. It is similar to other contracts, but with a few big differences. One reason is that the content of insurance policies are highly regulated by State government. A big reason for that is to ensure that the insurance policies are fair to consumers and that they offer genuine benefits in return for the premiums paid.
• When an insurance company wants to sell insurance policies in a state, it has to agree to be regulated by the insurance department of that State. You should never, ever do business with an insurance company that isn’t authorized to business in your State. It is even more dangerous to do business with an entity that promises to pay medical benefits but claims to be “exempt” from insurance licensure laws. You can call the Department of Insurance in your State Capitol to find out if the insurer is licensed (or “authorized”, or The Insurance Problem Solver can do it for you.
• I know that everybody complains about the cost of insurance (premiums). State insurance regulators are involved in this, too. It is because of the concern with the solvency of the insurance company (its ability to pay expected claims in the future). It doesn’t do anyone much good to pay premiums to an insurance company only to have it unable to pay claims later because it has run out of money.

Fundamental to any kind of insurance is the concept of “transfer of risk.” This means that the burden of paying financial damage (say, for medical expenses in a hospital or for the cost of car repair from a collision) shifts from you to the insurance company. The obligation to pay requires:
A. That the insurance policy is in force at the time of the event. In many cases, this refers to premiums being paid, but other circumstances could be involved, too
B. That the insurance policy covers the kind of event involved
C. That you (the insured) have complied with all of the requirements of the insurance policy (such as the timely report of a claim and honestly answering the questions on the application).

If an “insurance policy” does not transfer risk, it probably isn’t insurance.

The insurance company’s obligation to pay is generally limited to what is stated in the policy. However, there can sometimes be differences in interpretation. That’s why you might need The Insurance Problem Solver.