Insurance is becoming more and more important these days. You want you and everything you own to be safe and to know that if something happens, you are going to be covered for. That is what insurance companies are for, and Farmer Brown Insurance is a great choice.

Before talking about how it works and why you need it, we are going to try to explain what it essentially is. It came about from the golden days when merchants split their products into several different shipments so that if one boat happened to get wrecked, they wouldn’t lose all of their money. Nowadays there is insurance for almost everything, from your car to your life.

How does insurance work? Well, it is simple, you pay a company and join others who do the same. This company then pays claims made by their other clients is using that money. They pool the money and then share expenses and loses. It is important to mention that the members of the same pool have risks that are similar in characteristics.

When you buy insurance, you buy it so that you will protect anything important in case an accident happens that might burden you financially. You might want to secure your close ones in case of your death, you can get protection in case of an injury in a car accident, or want to protect your home in case of a burglary, fire or something of that sort.

Besides of the obvious personal benefit insurance has, it also benefits the society by paying for the covered losses for people and businesses. It provides funds for investment, encourages accident prevention and makes it possible for people to borrow money and downgrade the amount of stress and worry that come about with unfortunate events that are bound to happen at some points of everyone’s life.

Now let’s talk about premiums. The premiums insurance companies collect are used in three ways. Firstly they use it in order to pay claims, secondly to take care of all the expenses that are included in selling and providing insurance protection and thirdly for investments. Investments are the way companies keep the same cost of insurance for policyholders. Another important question is how are premiums determined. This is a complex process called insurance rate setting. Insurance is not a thing that can have it’s price easily decided because the money people pay is to cover the cost of unexpected events like fires and car accidents. It is also done due to the fact that premiums have to be paid in advance. Pricing has to be decided before you know what the cost is. Even though there are a lot of factors that get considered when rates are made, it is essentially based on two things: How frequent are the said claims made and how severe are they, in other words, how much money they will demand.

Fraud has a major impact on insurance companies, costing the companies around $30 billion yearly. Fraud happens more during the recession and when major catastrophes happen. It also happens at different times in the insurance transaction be it by an individual or organized fraud rings. Common situations are blowing what happened out of proportion, submitting claims for damages or injuries that didn’t actually happen or falsify facts that are stated on an insurance application.

A very important thing to know is that all legal businesses are to be monitored by the government, insurance companies included. This is usually done through state governments. Every state has an agency that has a chief insurance regulator as its head who has the responsibility to administer the laws of insurance which were approved by their respective state Legislature. What this means is that insurance laws differ from one another based on the state.