Insurance Definition

What is Insurance

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

BREAKING DOWN Insurance

There are a multitude of different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them, for a price. The most common types of personal insurance policies are auto, health, homeowners, and life. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.

Businesses require special types of insurance policies that insure against specific types of risks faced by the particular business. For example, a fast food restaurant needs a policy that covers damage or injury that occurs as a result of cooking with a deep fryer. An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives. There are also insurance policies available for very specific needs, such as kidnap and ransom (K&R), medical malpractice, and professional liability insurance, also known as errors and omissions insurance.

Insurance Policy Components

When choosing a policy, it is important to understand how insurance works. Three important components of insurance policies are the premium, policy limit, and deductible. A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs.

A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness. For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies; so, finding the price that is right for you requires some legwork.

The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a general life insurance policy, the maximum amount the insurer will pay is referred to as the face value, which is the amount paid to a beneficiary upon the death of the insured.

The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy.

Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims. In regards to health insurance, people who have chronic health issues or need regular medical attention should look for policies with lower deductibles. Though the annual premium is higher than a comparable policy with a higher deductible, less expensive access to medical care throughout the year may be worth the trade-off.

What Is an Insurance Binder?

The insurance binder represents the agreement between you and the insurance company and is a confirmation in writing that a policy will be issued and that you are insured.

Definition of Insurance Binder

An Insurance Binder is a temporary document issued by an authorized insurance representative that serves as proof of insurance for your home insurance, property or car. Your binder of insurance will outline the basic conditions, coverages, deductibles and named insureds that will appear in your insurance contract.

An insurance binder is subject to all the terms and conditions of the pending insurance contract.

What Information Is Included in an Insurance Binder?

The insurance binder should include all the necessary information about the insurance contract that has been purchased.

An Insurance Binder Will Include the Following 7 Key Elements:

1. The insurance binder should clearly identify the risk. The risk is that which is insured. For example, if the binder is for a car, the insurance binder should include the vehicle make, model and serial number of the car. If the insurance binder is for a property, the binder should include the insured risk address and the amount of insurance on the dwelling (dwelling value insured). If you are insuring a condo or apartment, it should also include the insured contents amount.

2. Liability Insurance amount. The insurance binder will indicate the amount of insurance for liability coverage on the “risk.”

3. Deductibles and Coverage Limits. The insurance binder should indicate the deductible for each section of insurance on the car, or for the home or property. The type of coverage and limit for each coverage should also be mentioned. This way the insurance binder serves as a true confirmation of the basis of the insurance contract, and limits of insurance that you can expect in the event of a claim. If there is a relevant insurance endorsement that is an important aspect of the coverage you purchased, the insurance binder may also include these coverages.

4. The insurance binder must specify the named insured and also specify additional named insureds. For example, the named insured is generally the owner of the property. The additional named insured could be an additional owner, like if a property is in one or more people’s names, or also the mortgagee or lienholder. In the case of a car, the finance and leasing company should appear on the binder of insurance.

5. The binder of insurance should clearly indicate the insurance company, and type of coverage. Since insurance has many different levels of coverage, in particular for homes, the coverage type must be defined on the binder to allow no room for error or misunderstanding.

6. The binder will clearly identify the term of the insurance, the day the insurance coverage becomes effective and the day the binder of insurance is valid until.

7. The binder must identify the insurance agent who authorizes the binder as well as usually a disclaimer that will indicate that the binder is subject to the terms and conditions of the policy wording.

Who Needs an Insurance Binder?

Any time you purchase insurance, you should ask for an insurance binder so that you have proof that a policy will be issued and more importantly, you can confirm that what you have asked to have covered is insured properly. When you get your binder of insurance check all details very carefully so that you do not have a problem. If you have a claim before the official insurance documents arrive the binder will be very important. Your binder will provide a basic summary of who and what is insured, as well as the deductible and basic policy limits.

Car Insurance: Binders of Insurance

A car insurance binder is often used to prove that you have obtained insurance on your vehicle and is may be a requirement of a car dealership or lease or finance company when purchasing a new car.

For a car policy, you should see a description of coverages such as Liability, Collision or Comprehensive coverage and deductibles. Mortgage clauses and clauses applying to the finance companies are also important.

Home Insurance: Binders of Insurance

A home insurance binder is used to prove that you have insurance coverage on your home and is most commonly used when signing for a new property in order to prove to the lender or mortgage that the property is insured.

For a home policy, you should see the amount of insurance on the building amount, the deductible and the named insured and policy term which will include the mortgage if applicable.

When Will an Insurance Binder Be Issued?

An insurance binder should be issued as soon as you request to have an insurance policy issued. This is your temporary proof of insurance.

An insurance binder is useful when the insurance policy documents, such as the declaration page and the contract wording are not available immediately. It is normal for it to take a few days for an insurance company to process all the paperwork required before an actual policy is issued, this is where the insurance binder becomes an important part of proving you are insured until you get your documents.

How Long Is a Binder of Insurance Good For?

The binder of insurance will usually be valid for a set term written on the binder of insurance. The binder is only valid until such time that the actual insurance policy documents are printed or issued. Once the official documents are issued, the binder is null and void and is replaced by the actual insurance contract.

What Happens If an Insurance Binder Expires?

Insurance binders usually indicate the maximum time limit for which they are valid. If you have not received your new policy documents and your binder is about to expire, make sure and follow up to ask for your documents or you may not be insured. You can read more about what to do in this case at the end of this article.

What Is Not Included in the Insurance Binder?

The insurance binder is a summary of insurance that is meant to give a general overview of the key coverages until such time the actual policy arrives. The insurance binder will not typically include any policy wording or definition of coverages such as special limits on home policies. The policy wording and terms of your actual insurance contract will always take precedence over anything outlined in a binder.

Two Examples of When an Insurance Binder May Be Used as Proof of Insurance

1. Jack is buying a new home, he forgets to contact the insurance company until the last minute, and although he is able to obtain the quote and confirmation of an insurance policy for the residence, the insurance company can not process all the paperwork right away. His real estate agent advises him that at the signing for the home, he will need to have a proof of insurance coverage. He calls his insurance agent and asks for a binder of insurance. The binder is a legally binding document that will be sufficient proof for Jack to complete the signing for his home. Once the actual insurance policy arrives in the mail, Jack will disregard the binder, since the policy is the actual proof of insurance and contains the complete information.

2. Jennifer is purchasing a new car. Her dealership tells her that they can not let her pick up the car until they receive proof of insurance. Jennifer calls her insurance agent who explains she doesn’t have time to issue the documents on the spot, however has the authority to issue a binder of insurance that will prove Jennifer is covered until the documents get officially issued. Jennifer’s authorized insurance agent completed the paperwork and provides her with the binder of insurance.

What If I Never Receive the Insurance Policy? After an Insurance Binder Expires

It is extremely important to make sure you receive your insurance policy. A binder of insurance does not replace an insurance policy and is not meant to represent a long-term contract. If you have not received your insurance policy before the expiry of your binder there may be a major problem. It is your responsibility to follow up on your contract and make sure it gets issued. Even if you paid for the insurance, until you have a valid insurance contract in your hand, you are at risk once that binder has expired.

You have the right to have a copy of your contract.

Your Insurance Binder Will Not Insure You After It Has Expired

If you have trouble getting your contract issued and are unable to get help from the agent or insurance representative who issued your binder ,then you can also contact your state insurance commissioner to help you figure out what is going on. In most cases, your agent should be able to sort the matter out and get your insurance policy in your hands within a couple of weeks. Just remember, the binder is temporary, you need the contract once the term of the binder is finished.

Insurance Companies World’s Top 10

Insurance helps us to do exactly what this quote suggests. We all face many kinds of risks: risk of meeting with an accident, falling sick, being a victim of a natural disaster or fire, and above all risk of life. All these risks not only come with pain and suffering but also hurt financially. Insurance is one way of being prepared for the worst; it offers the surety that the economic part of the pain will be taken care of. In this article, we take a look at some of the top insurance companies. There are many criteria on the basis of which such a list can be prepared: premium collections, market capitalization, revenue, profit, geographical area, assets and more. The following list focuses on a number of factors and the insurance companies on it are in no particular order.

1) AXA

With over 102 million customers in 56 countries and an employee base of 157,000, AXA is one of the world’s leading insurance groups. Its main businesses are property and casualty insurance, life insurance, saving and asset management. Its origin goes back to 1817 when several insurance companies merged to create AXA. The company is headquartered in Paris and has a presence across Africa, North America, Central and South America, Asia Pacific, Europe and the Middle East.

In 2013, AXA as a move to increase its foothold in Latin America acquired 51% of the insurance operations of Colpatria Seguros in Colombia. During the same year, AXA became the largest international insurer operating in China as a result of its 50% acquisition of Tian Ping (a Chinese property and casualty insurer). In addition, the company acquired the non-life insurance operations of HSBC in Mexico. The AXA Group reported total revenues of €99 billion for fiscal year 2015.

2) Zurich Insurance Group

Zurich Insurance Group, a Switzerland-headquartered global insurance company, was founded in 1872. Zurich Group, together with its subsidiaries, operates in more than 170 countries, providing insurance products and services. The core businesses of Zurich include general insurance, global life and farmers insurance. With its employee strength of over 55,000, Zurich caters to the vast insurance needs of individuals and businesses of all sizes: small, mid-sized and large-sized companies and even multinational corporations.

Total revenues in 2015 were $60.568 billion.

3) China Life Insurance

China Life Insurance (Group) Company (LFC) is one of Mainland China’s largest state-owned insurance and financial services companies, as well as a key player in the Chinese capital market as an institutional investor. The origin of the company goes back to 1949 when the People’s Insurance Company of China (PICC) was formed. Its offshoot PICC (Life) Co. Ltd was created after parting ways with PICC in 1996. PICC (Life) Co. Ltd was renamed as China Life Insurance Company in 1999. The China Life Insurance Company was restructured in 2003 as China Life Insurance (Group) Company, which has seven subsidiaries. The businesses are spread across life insurance, pension plans, asset management, property and casualty, investment holdings and overseas operations.

The company is listed on the New York Stock Exchange, the Hong Kong Stock Exchange and the Shanghai Stock Exchange, and is the biggest public life insurance company in terms of market capitalization in the world.

4) Berkshire Hathaway

Berkshire Hathaway Inc. (BRK.A) was founded in 1889 and is associated with Warren Buffet, who has transformed a mediocre entity into one of the largest companies in the world. Berkshire Hathaway is now a leading investment manager conglomerate, engaging in insurance, among other sectors such as rail transportation, finance, utilities and energy, manufacturing, services and retailing through its subsidiaries.

It provides primary insurance, as well as reinsurance of property and casualty risks. Companies like Berkshire Hathaway Reinsurance Group, GEICO, Berkshire Hathaway Primary Group, and General Re, National Indemnity Company, Medical Protective Company, Applied Underwriters, U.S. Liability Insurance Company, Central States Indemnity Company and the Guard Insurance Group are subsidiaries of the group.

5) Prudential plc

Prudential plc (PUK) is an insurance and financial services brand with operations catering to 24 million customers across Asia, the U.S., the U.K and most recently Africa. Prudential was founded in United Kingdom in 1848. Prudential Corporation Asia, Prudential U.K., Jackson National Life Insurance Company and M&G Investments are the main businesses within the group. Jackson is a prominent insurance company in the United States, while Prudential U.K. is one of the leading providers of pension and life.

Prudential plc is listed on the stock exchanges of London, Hong Kong, Singapore and New York. It has approximately 22,308 employees worldwide, with assets under management worth £509 billion.

6) United Heath Group

The UnitedHealth Group Inc. (UNH) tops the list of diversified health care businesses in the United States. Its two business platforms – UnitedHealthcare for health benefits and Optum for health services – work together, serving more than 85 million people in every U.S. state and 125 countries. The UnitedHealth Group uses its experience and resources in clinical care to improve the performance of the health care services sector.

The company reported revenue of $157.1 billion in 2015. Fortune has featured UnitedHealth Group as the “World’s Most Admired Company” in the insurance and managed care sector six years in a row.

7) Munich Re Group

Founded in 1880, Munich Re Group operates in all lines of insurance and has a presence in 30 countries, with focus a on Asia and Europe. The company’s primary insurance operations are carried out by its subsidiary, ERGO Insurance Group, which offers a comprehensive range of insurance, services and provision. Munich Re Group’s home market is Germany, where ERGO is a leader in all areas of insurance. The group’s newest arm, Munich Health, parlays the group’s risk-management and insurance expertise into the health care field.

The group has around 45,000 employees worldwide, working in all businesses of insurance: life reinsurance, health reinsurance, accident reinsurance, liability business, motor reinsurance, property-casualty business, marine reinsurance, aviation reinsurance and fire reinsurance. The Munich Re Group reported a profit of €3.1 billion in 2015.

8) Assicurazioni Generali S.p.A.

Assicurazioni Generali, founded in 1831, is the Assicurazioni Generali Group’s parent company. The Generali Group is not only a market leader in Italy, but is also counted as a prominent player in the field of global insurance and financial products. The group, with a presence in more than 60 countries, is an international brand with dominance in Western, Central and Eastern Europe. The Generali Group’s prime focus has been life insurance, offering diverse products from family protection and savings polices to unit-linked insurance plans. It offers an equally diverse range of products in the non-life segment as well, such as coverage of car, home, accident, and health, along with coverage of commercial and industrial risk.

The group has 77,000 employees and a client base of 65 million people worldwide. It has €480 billion in assets under management and is one of the world’s 50 largest companies.

9) Japan Post Holding Co., Ltd.

The Japan Post Holding Co., Ltd. is a major state-owned conglomerate in Japan. The company has four primary divisions: Japan Post Service (for mail delivery), Japan Post Network (runs the post offices), Japan Post Bank (deals with banking functions), and Japan Post Insurance (provides life insurance). Japan Post Insurance operates within Japan Post Holding to provide insurance to its clients. The insurance arm makes use of the post offices nationwide network, in addition to its own sales offices, to reach out and provide services to the clients.

Japan Post Holding, which went public in 2015, reported consolidated after-tax profits of $3.84 billion from April through December of 2015. The group runs the largest insurer in Japan (Japan Post Insurance).

10) Allianz SE

Founded in 1890, Allianz SE is a leading financial services company, providing products and services from insurance to asset management. Allianz caters to customers in more than 70 countries with €1.8 billion in assets under management. Insurance products range from property and casualty products to health and life insurance products for corporate and individual customers. The company is headquartered in Germany.

In 2015, total revenues reached a new high of €125.2 billion euros.

The Bottom Line
Some of the other reputable names in the insurance business are ING Group (ING), Prudential Insurance Company of America (a subsidiary of Prudential Financial, Inc., PRU), AIA Group Ltd., Ping An Insurance Company of China, Ltd., American International Group, Inc. (AIG), Manulife Financial Corporation (MFC), and MetLife, Inc. (MET). Picking the right insurance company to invest in is important and should not be based on a company’s size alone. A few things on your check list should be the company’s rating, its financial strength, if the company specializes in any particular type of insurance, refusal of claims in the past, proximity of office, premium rates and discounts offered on multiple policies.