Getting the right insurance policy for yourself is always easier when you have a working understanding of the terms and phrases prevalent in the insurance world. Knowing what some of these words mean and how they apply to you might be instrumental in helping you pick the perfect insurance policy for your needs. When it comes to insurance, most people tend to encounter a few challenges because of how confusing and convoluted language the insurance world can be. To fully understand any insurance policy you plan on taking. You need first to make yourself familiar with the terms you are likely to encounter. Two of the most popular terms of insurance are Exposure and Coverage.
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What is Exposure?
In insurance, exposure is used by insurance companies when referring to your potential to suffer accidents or any other form of loss. Exposure is a vital aspect of insurance because it is what every insurance company uses to determine the premiums it offers to each client. Mostly, your level of exposure plays a vital role in deciding whether or not an insurance company will provide you with its services. Not sure what we mean? Perhaps this will help. If you are a driver, the more you drive, the higher your exposure. This translates to the more often you drive, the higher your risk of being involved in an accident or other traffic-related problem complications. Similarly, city dwellers automatically generate higher exposure than rural dwellers since they are more likely to encounter potential loss.
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Some insurance companies also call their insured entities exposures. Unsurprisingly, once you take out insurance, you represent a risk to the insurance company as they must pay the required dividends the moment you file a claim.
Ways an Insurance Company Uses Exposure
Generally speaking, insurance companies can use exposure in any of the following manners.
Earned Premium
When you secure a policy with an insurer, you are expected to pay a certain sum for coverage (premium) over a particular time. Once the agreed-upon duration of time has lapsed, that premium can be considered a “profit” or “earned” by the insurance company.
Your exposure is key to determining your premium as it offers your insurer clear insight into what level of risk they are taking on you.
Unearned Premium
In many ways, this is almost the exact opposite of the above. Unearned premium is that portion of the premium you paid to your insurer you’re still under coverage for. For example, let’s say you took out a 5 –year insurance on your vehicle for 5, 000 Ringgit. After the first year on that policy, your insurance company’s earned premium is 1, 000 Ringgit while its unearned premium is 4, 000 Ringgit. Note that an unearned premium could be returned if your package is canceled or you do not need that insurance anymore.
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What is Coverage?
Insurance coverage is the insurance used to cover certain risks or liability incurred by an individual. Coverage can be beneficial as it often comes in handy when you least expect it. You could get.
Auto Insurance
This insurance is used to cover your vehicle. How high or low the premium you’ll pay generally depends on several factors such as your driving history, how often you drive, where you are, age, and so on.
Life Insurance
What you pay for this often largely depends on factors such as age and gender. Other factors such as health status as well as an occupation also have an influence here.
There you have it. With this, you’re well on your way to taking out the best insurance policy for yourself.
