How does insurance work?

Insurance operates on risk-sharing. Policyholders pay premiums, pooling resources with others. When a claim is made due to a covered loss, the insurer compensates the policyholder based on policy terms. This system helps individuals or businesses recover from financial setbacks while mitigating overall risks.

How do inflation and economic changes impact premiums?

Inflation can increase premiums for policies tied to cost-of-living adjustments. Economic downturns may also affect insurer investment returns, potentially leading to rate adjustments.

How does adverse selection affect health insurance markets?

If only high-risk individuals purchase coverage, insurers face higher claims costs, leading to premium increases or policy restrictions for everyone.

Who needs professional liability insurance?

Any professional providing services or advice, including doctors, lawyers, consultants, accountants, architects, and engineers, should consider PLI. It is particularly crucial for those in industries where mistakes or omissions could lead to financial loss or harm to clients.

Do whole life insurance policies pay dividends?

Some whole life policies from mutual insurance companies pay dividends, which can be used to buy additional coverage, reduce premiums, or be taken as cash.

What is the difference between a hazard and a peril?

A peril is the cause of loss (e.g., fire), while a hazard increases the likelihood of a peril occurring (e.g., faulty wiring).

How does blockchain enhance data security in insurance?

Blockchain secures data through cryptographic hashing and decentralized storage, preventing unauthorized alterations. Since information is distributed across nodes, it is resilient against hacking, making policyholder data and transaction records more secure than traditional systems.

Do I pay taxes on property and casualty insurance claims?

Insurance claim payouts for property damage are not taxable if they only compensate for the actual loss. Excess payments beyond losses may be taxable.