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Importance of insurance, types of insurance in Zimbabwe

An insurance policy/plan is a contract between an individual (Policyholder) and an insurance company (Provider). Under the contract, you pay regular amounts of money (as premiums) to the insurer, and they pay you if the sum assured on an unfortunate event arises, for example, the untimely demise of the life insured, an accident, or damage to a property such as a house or a car. Let’s know more about what is insurance and what are the various benefits, features & types of insurance available in Zimbabwe.

Based on the insurance terms, the insurer provides a lump sum amount to the policyholder/nominee in case of an eventuality.

The choice of a specific type of insurance policy is made based on individual needs and life goals.

There are various components of an insurance policy, a firm understanding of which helps a lot in choosing the plan that is most suitable for your needs.

Insurance Components 

Here are some of these components to help you better understand ‘what is insurance’ and how it works:

Insurance Premium Policy

The premium of an insurance policy is the amount that you need to pay to purchase a specific amount of insurance cover. It is typically expressed as a regular cost, be it monthly, quarterly, half-yearly, or annually, that you incur during the premium payment term.

There are various factors based on which an insurance company calculates the premium of an insurance policy. The idea behind is to check the eligibility of an insured individual for the specific type of insurance policy that he/she wants to buy.

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For example, if you are healthy and do not have a medical history of getting treatment for severe bodily diseases, you will likely to pay less for health insurance or life insurance policy than someone suffering from multiple ailments.

You should also know that different insurance companies may ask for different premiums for similar types of policies. So, selecting the right one at a price you can afford does require some effort.

Policy Limit

It is defined as the maximum amount that an insurance company is liable to pay for the losses covered under the insurance policy. It is determined based on the period (policy term), loss or injury, and similar other factors.

Typically, the higher the policy limit, the higher will be the premium payable. For a life insurance policy, the maximum amount that an insurer pays to the nominee is known as the sum assured.

What is Insurance

Deductible

Deductible related to an insurance policy is the amount or percentage that the policyholder agrees to pay out of pocket before the insurer sets in to settle a claim. You can also think of it as a deterrent to small, insignificant claims that many people file under their insurance policies.

Deductibles are applicable per policy or per claim as defined by the terms of a specific type of policy. Generally, insurance policies bought with high deductibles are less expensive as the higher out-of-pocket expense results in fewer claims.

What is Insurance

How Does Insurance Work? 

As defined above, an insurance policy is a legal contract that binds both policyholder and the insurance company to each other. It has all the details of the conditions or circumstances under which either the insured individual or policy nominee receives insurance benefits from the insurer.
Insurance is a method by which you can protect yourself and your loved ones from facing a financial crisis. You buy an insurance policy for the same, while the insurance company takes the risk involved and offers insurance cover at a specific premium.

In case of any eventuality, the insured or nominee can file a claim with the insurer. Based on the evaluation criteria for claims, the insurer reviews the claim application and settles the claim.

Types of insurance

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below.

For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident).

A home insurance policy typically includes coverage for damage to the home and the owner’s belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner’s property.

Business insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are discussed below under that name; and the business owner’s policy (BOP), which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners’ insurance packages the coverages that a homeowner needs.

Auto insurance Auto insurance protects the policyholder against financial loss in the event of an accident involving a vehicle they own, such as in a traffic collision. Visit this website to know more about auto insurance

Coverage typically includes: Property coverage, for damage to or theft of the car; Liability coverage, for the legal responsibility to others for bodily injury or property damage; Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

Health insurance Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance protects policyholders for dental costs. Dental insurance is often part of an employer’s benefits package, along with health insurance.

Accident, sickness and unemployment insurance Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and credit cards.

Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.

Long-term disability insurance covers an individual’s expenses for the long term, up until such time as they are considered permanently disabled and thereafter.

Insurance companies will often try to encourage the person back into employment in preference to and before declaring them unable to work at all and therefore totally disabled. Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work. Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.

Workers’ compensation insurance replaces all or part of a worker’s wages lost and accompanying medical expenses incurred because of a job-related injury.

Casualty Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.

Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement. Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a loss.

Life Life insurance provides a monetary benefit to a decedent’s family or other designated beneficiary, and may specifically provide for income to an insured person’s family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. In most states, a person cannot purchase a policy on another person without their knowledge.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are regulated as insurance, and require the same kinds of actuarial and investment management expertise that life insurance requires.

Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.

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Marian Shamhu

Marian Shava is a full-time journalist and social media enthusiast
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