Many risks have to be faced by people who run businesses. Some of these risks, as will be seen below cannot be insured against. There are , however, a great many risks against which it is possible nowadays to insure.
For example, in return for a payment, known as a premium, an insurance company will undertake to compensate the person making the payment (the Insured) in the event of a specified loss. Thus, if Jimmy is the owner of a shop with a value of RM100,000 which he wishes to insure against fire he will take out a policy(the document setting out the exact terms of the agreement) with an insurance company. Jimmy will then have to pay a premium at regular intervals, the amount depending on the value of the property insured. If he wishes to obtain full compensation for any loss he may suffer he must must insure his property for its full value. If the shop should be completely destroyed by fire he will, after due inquiries have been made, receive a sum of RM100,000 as compensation. Similarly, he could insure his stock against fire or burglary.
The advantage of insurance is clear. In return for a relatively small payment Jimmy is relieved of worry regarding the safety of his property, for he knows that should he suffer loss he will receive compensation. How, then, does it come about that an insurance company can bear risks which people like Jimmy cannot bear? That subject will be made clear in the next part of my site.
For example, in return for a payment, known as a premium, an insurance company will undertake to compensate the person making the payment (the Insured) in the event of a specified loss. Thus, if Jimmy is the owner of a shop with a value of RM100,000 which he wishes to insure against fire he will take out a policy(the document setting out the exact terms of the agreement) with an insurance company. Jimmy will then have to pay a premium at regular intervals, the amount depending on the value of the property insured. If he wishes to obtain full compensation for any loss he may suffer he must must insure his property for its full value. If the shop should be completely destroyed by fire he will, after due inquiries have been made, receive a sum of RM100,000 as compensation. Similarly, he could insure his stock against fire or burglary.
The advantage of insurance is clear. In return for a relatively small payment Jimmy is relieved of worry regarding the safety of his property, for he knows that should he suffer loss he will receive compensation. How, then, does it come about that an insurance company can bear risks which people like Jimmy cannot bear? That subject will be made clear in the next part of my site.
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