How exactly would an insurance policy protect a policyholder?


All insurance policies are designed to protect against any possible economic loss that is caused by the damage or loss that could be measured in financial terms. The extent of the loss would be assessed by the insurance company or an independent agency appointed for this purpose and the policyholder would be appropriately compensed. The insurance policy could compensate the cost of repair of a damaged automobile or even replace the automobile if it is beyond repair. Similarly, the insurance policy could pay the cost of the medical bill and the loss of income of a person injured in an accident. This is done to put the injured person in the financial position he/she would have been if the loss or the accident had not occurred.

However, all insurance policies have certain limitations. Many types of losses could not be fully compensated by money alone. To cite an example, the insurance company would not be able to return the life of a dead person. If a serious accident or illness occurs, the insurance company would not be able to mitigate the emotional injury or the loss of any ‘sentimental’ value associated with the vehicle or any other property.