How Insurance Works Step by Step
Insurance works through a structured process that involves risk assessment, premium calculation, policy issuance, and claims management. When a person applies for insurance, the insurer evaluates the level of risk involved based on factors such as age, health condition, occupation, location, or driving history. This evaluation helps determine the premium amount.
Once the policy is issued, the policyholder pays premiums regularly to keep the coverage active. In return, the insurance company promises to provide financial compensation if a covered event occurs. The policy document clearly defines what is covered, what is excluded, and how claims should be filed.
When a loss happens, the policyholder submits a claim to the insurer. The insurer then investigates the claim to confirm its validity and ensure it aligns with policy terms. If approved, the insurer pays compensation according to the coverage limits and deductibles stated in the policy.