Despite the cover provided by the National Health Service and many employers, the insurance industry is huge in the UK. Some forms of insurance, such as vehicle and buildings, are required by law, but others offer certain financial assurances to those who take up a plan.
Simply put, insurance is in place to offer a means of protection from making a financial loss in the event of illness, injury, disability, death, and damage. When people buy insurance, they are effectively performing a form of risk management, paying monthly sums to ensure that if something were to happen to them, that they’d be covered financially by the insurer.
While there are many different forms of insurance in the UK, for the most part, they follow the same process of purchase, and function in very similar ways.
TBefore entering the process of agreeing to a policy, it’s important that you consider the main elements of what you need to think about when buying insurance, such as doing your research into all of the insurance companies available, and gathering all data necessary so that you can provide accurate information when applying. Once you’ve done your research, shopped around a little bit, and been given some quotes, it’s time to start the formal process of applying for some insurance.
When you apply to buy insurance, whether it’s over the phone, on the internet, or in-house, you’ll most likely need to fill out a form – if you’re applying over the phone, those assisting you will ask you questions that they will fill out on the sheet. The most important element here is to be as truthful and as accurate as possible as you may be denied a claim when you most need it if the information provided turns out to be false.
Depending on what type of insurance that you would like, you may then have to undergo a medical exam or have an interview with an employee of the insurance company. The medical exam may be used by health, dental, or life insurers to allow them to collect the information necessary to calculate the cost of premiums.
Once this process is complete, it’s a matter of waiting for approval. Some insurance providers will take longer to decide whether or not to approve an applicant, but once approved, you’ll then have a chance to sign or decline the insurance and premiums offered by the company.
TWhen you buy insurance, you agree to pay premiums each month or year. These premiums come about following the calculations of the insurance company that are based on information that you have provided. The company will take into account many risk factors that would entail you making a claim should they provide you with insurance. If you’re applying for vehicle insurance, they’ll look at your years of experience and accident history; for health insurance, your family history of serious illnesses will be added to the equation.
The insurance company will weigh all of your risk factors into a risk assessment based on statistical analysis to gauge the probability of you making a claim, which will, in turn, determine how much they want to charge you in premiums. Those at a higher risk or are statistically more likely to make a claim will be asked to pay more each month or year. Once you have successfully purchased insurance, you will then begin to pay the formerly calculated and agreed upon premium each month or year. With some providers, there is a set timeframe during which you cannot make a claim on your insurance: when applied, this is often between one and three months into the contract.
If an incident occurs which is covered by the insurance policy that you have purchased, you can make a claim on the insurance. All you do is contact your insurance provider, inform them of the incident, and then they will check that your policies protect you in such an event. If your claim matches the criteria of the policy, you will be paid, or payment arrangements will be made, according to the insurance agreement.
However, one of the risks of making a claim on your insurance is that it can result in your premiums going up – meaning that you pay more per month for insurance. So, be sure to keep informed as to the payout and potential changes to your insurance agreement should you make a claim beforehand.
In society and according to the law, insurance is not a form of gambling, with a couple of forms of insurance being required by law. However, there are stark comparisons that can be made between both gambling and purchasing insurance. With gambling, you place a bet on an unforeseeable outcome and are then given a prize if you correctly predict the unforeseeable outcome. With insurance, you’re paying a premium in case the unforeseeable outcome of you suffering an injury, illness, accident, or death occurs, being paid a sum of money if such an incident occurs.
But it’s not just the method of paying to potentially get a payout that yields comparisons between gambling and insurance. The cliché that ‘the house always wins’ in the case of casinos is also true to that of insurance providers. With insurance companies – an industry which boasts, as of 2018, £40 billion written premiums in the UK according to Statista – premiums are adjusted to account for the probability that they will need to payout, charging someone more if they are deemed to be at a higher risk of making a claim. If the person who is a perceived greater risk of making a claim doesn’t, the insurer benefits at a greater rate than those paying smaller premiums.
If there wasn’t a house edge at casinos, there wouldn’t be a house in the first place, and the same goes for insurance providers, but it’s the thrills of being one of the players who win more than they put in which brings enjoyment to gamblers. One of the best examples of this is with slot games. There are hundreds and hundreds of online slot games analysed by SlotCatalog, and the majority of their top-rated games have a return to player percentage of 96 per cent. This means that over time, 96 per cent of the money put into the game will be paid out to the player but, of course, some of that income is converted into very big wins, such as when the massive jackpots land.
With gambling games, players submit a selected fee each time to try to win an amount based on fixed odds, rather than pay varying amounts based on their likelihood of getting a payout, as is the case with insurance. It is also true that a player could stand at a roulette table for hours, paying huge sums of money, and return less than they have paid in, as can those who pay insurance over many years if they avoid incidents or are part of a fixed lump sum plan, which has been exposed by the money saving expert Martin Lewis.
The biggest difference between the two on a psychological level is that gambling is performed by those with aspirations of having more money, whereas insurance panders to human fear, offering a contingency plan just in case certain incidents occur.
Of course, insurance doesn’t just work on fear mongering while lapping up ‘losing bets’ month after month: insurance offers otherwise unaffordable cover to those that need it at a much more affordable rate. Rather than thinking of it as a form of gambling, despite the many comparisons that can be drawn, insurance is better thought of as a pre-emptive loan.
In some cases, you’ll be paying a comparatively small monthly fee when compared to the claim amount if something does happen. By paying premiums each month, the cover becomes more affordable than unexpectedly being needed to fork out large sums to cover medical bills or to keep your household in working order. It is a form of risk aversion or a transfer of risk from yourself to the insurance company, with you paying the insurer a regular sum to continue to take on the risk.
Many people may never make a claim on their insurance but have had peace of mind that if something were to happen, they’d be covered. Others who have been forced to claim on their insurance will, for the most part, be glad that they had the financial safety net to help them out.
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