What is insurance and who are its parties?

In the complex landscape of modern life, uncertainties abound, ranging from unforeseen accidents to unexpected financial burdens. Insurance emerges as a cornerstone of financial security and risk management in navigating these uncertainties. But what exactly is insurance, and who are the primary parties involved in this vital system?

What is insurance?

At its core, insurance is a mechanism designed to protect individuals and businesses against potential losses or liabilities. It operates through a contractual agreement between two principal parties: the insurer and the insured. In exchange for payment of premiums, the insurer agrees to provide financial protection or compensation to the insured in the event of specified losses, damages, illnesses, or liabilities.

What is insurance

What is the purpose of insurance?

The purpose of insurance is to mitigate risks by spreading them among a large group of policyholders, thus providing security and peace of mind to individuals and businesses facing uncertain events.

Insurance removes or limits the burden of certain types of random events. These events may be negative or positive, however, they lead to increased financial needs.

For a single person, the financial costs of such events may be very painful. Thanks to the insurance company, which collects premiums from many people but pays compensations only to those who suffered damage, the costs are spread out.

purpose od insurance, two people under umbrella

Who are the three people involved in a life insurance policy?

In a life insurance policy, there are typically three main parties involved:

  1. The Insured: This is the individual whose life is insured under the policy. In the event of the insured's death, the beneficiaries designated in the policy receive the death benefit.
  2. The Policyholder: Also known as the policy owner, this is the person who purchases the life insurance policy from the insurance company. The policyholder is responsible for paying the premiums to keep the policy in force. The policyholder may or may not be the same person as the insured. For example, someone might purchase a life insurance policy on behalf of their spouse or child.
  3. The Beneficiary: The beneficiary is the person or entity designated by the policyholder to receive the death benefit in the event of the insured's passing. The beneficiary may be a family member, a friend, a trust, or an organization. The policyholder can designate one or multiple beneficiaries and specify the percentage of the death benefit each beneficiary will receive.

three people

What are the functions of insurance?

Insurance fulfills three primary functions:

Protective: It provides the insured with protection in case of the occurrence of certain events. The protection usually has a financial dimension because the benefits paid by the insurance company are supposed to meet the suddenly increased needs or compensate unexpected damages. In practice, insurance services also provide solutions to problems in an organizational manner. This means that even before the occurrence of the insured event, the insured has a sense of security because, for a low price in comparison to possible losses, they discard the need to prepare financially and psychologically for the consequences of what might happen.

Preventive: It means preventing random events from occurring. Preventing damage is one of the obligations of the policyholder – its negligence or intentionally causing damage constitutes the basis for the refusal to pay the benefits.

Financial: There are many positive effects of risk financing through insurance. These include eliminating worries related to experiencing loss experience or the occurrence of sudden, increased financial needs; financial security for loved ones in the event of the insured's death; certainty and financial stability; increased financial credibility, or the release of funds that would otherwise be used to cover the damages.

The conclusion of certain types of life insurance policies allows you to collect savings using investment funds. The funds accumulated in this way can be used to secure income in old age, for a mortgage, or for future offspring.

Classification of insurance and insurance products

An insurance product is a package of services provided to an insured person by an insurance company for a specific fee, from the moment the insurance contract is concluded up to its termination. These products can be divided according to several criteria. The main division is compulsory and voluntary insurance.

Compulsory insurance is those that are required by law. They may be further categorized into compulsory general insurance, such as third-party liability insurance for motor vehicle owners, farmers, or tax advisors, as well as compulsory special third-party liability insurance, for example, statutory auditors or court bailiffs.

The second criterion for classifying insurance products is the number of insured objects - hence the division into further types of insurance: individual and collective. Collective insurance allows for a greater number of people or institutions to be covered by the protection. This allows for negotiating a lower premium and simplifying formalities related to the concluding of separate insurance contracts.

Collective insurance also distinguishes group insurance, in which the system of personal risk assessment, the level of premiums and benefits for a certain group of insured persons, e.g., employees from one workplace, are standardized.

The third criterion for the division of insurance is the subject of insurance and because of it, personal and property insurance are distinguished.

What is a third-party over claim?

A third-party over claim refers to a legal action taken by a party who was not originally involved in a contract or transaction but who asserts a claim against one of the parties involved. In insurance terms, a third-party over claim often arises when an individual or entity (the third party) seeks to recover damages or losses from an insurance company that has already settled a claim with its insured party.

This typically occurs when the third party believes that the insured party's negligence or wrongdoing caused their injury or loss, and they seek compensation beyond what was provided in the original settlement. The third party "over" the contract is asserting a claim against the insurer beyond the scope of the original insurance contract, hence the term "third-party over claim." These claims can lead to complex legal proceedings and often involve considerations of liability, coverage limits, and contractual obligations.

What is the difference between a third-party claim and a claim?

A "third-party claim" and a "claim" are related terms in the context of insurance, but they refer to different types of claims.

  1. Claim: In insurance, a claim is a request made by a policyholder to their insurance company for coverage or compensation for a loss or damage covered by their insurance policy. For example, if a homeowner's property is damaged by a fire, they would file a claim with their insurance company to receive funds to repair or replace the damaged property.
  2. Third-Party Claim: A third-party claim, on the other hand, is a claim made against a policyholder by someone who is not a party to the insurance policy. This could be an individual, business, or entity who has suffered a loss or injury caused by the policyholder's actions or negligence. For instance, if a driver causes a car accident and injures another driver, the injured driver may file a third-party claim against the at-fault driver's auto insurance policy to seek compensation for medical expenses, property damage, and other losses.

In summary, while a claim is a request for coverage or compensation made by a policyholder to their insurance company, a third-party claim is a claim made by someone who is not the policyholder against the policyholder's insurance policy for losses or damages caused by the policyholder's actions.

The Most Popular Types of Insurance in Poland

Poland is characterized by a relatively low level of insurance awareness, and the number of voluntary insurance policies taken out is still lower than in other European countries. This results in a small number of life insurance or accident and sickness insurance contracts being concluded. This is often a neglected aspect among our compatriots.

most popular in poland

One of the most popular types of insurance products in Poland is mandatory third-party liability insurance for owners of motor vehicles. Slightly behind is group life insurance, which is mainly organized by employers, providing favorable conditions due to the number of insured individuals, hence it is one of the contracts more willingly entered into. Our system supports both individual and group insurance. Thanks to it, you can manage insurance activities, products, risk assessment, etc., in an easy and efficient way, and prepare offers.

Another popular type of insurance is property insurance. It includes insurance for vehicles, real estate, travel insurance, and others. It is aimed at distributors, business administrators, and end customers. It consolidates all customer data in one place.

An issue that may discourage people from getting insured is the fear of losing the money paid into the policy or encountering difficulties in receiving benefits. However, a number of institutions have been established to work on behalf of clients, as well as those that gather and support insurance companies. Supervisory authorities are obliged to verify insurance companies in terms of solvency, the right to obtain information about the compliance of their activities with the law, and the manner in which it is conducted. In case of negligence on the part of the company, its license to operate may even be revoked. The Financial Supervision Commission and the Insurance Ombudsman deserve special attention in this regard as the main bodies acting on behalf of insurance company clients.

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