1. What is insurance?

Insurance is an arrangement with an insurance firm under which you pay them regular amounts of money and they agree to cover your costs if a certain unfortunate event occurs,  for example a traffic accident, damage to property or illness. Insurance, however, may also be arranged for a common event, e.g. if you reach a certain age.  An event covered by insurance is referred to as an insurance event.  The person to whom such an event occurs or may occur is called the person insured.  When an insurance event occurs (you get ill, suffer an accident, reach a certain age), the insurer will pay you a certain amount of money referred to as an insurance benefit / claim paid.  The insurance benefit / claim paid will help you or your family to overcome the financial difficulties or increased costs that may arise from an insurance event.  This means that by arranging insurance you obtain insurance cover against a certain risk.

As any other service,  insurance is not provided free of charge. The insurer promises to pay you a benefit / claim amount as agreed in the insurance contract, upon the occurrence of an insurance event.  The price you are to pay for this service is the insurance premium.  The person who takes out an insurance policy and pays insurance premiums is called the policyholder.  The insurance premium is payable in monthly, quarterly or annual instalments as a rule, but it may also be paid in a single payment.

In addition, the insurer may charge you various fees. Hence, ask the insurer how much you will be required to pay in fees and other costs. This is particularly important in the case of life assurance. Are you aware of the fact that life assurance fees are rather high, especially in the first few years?