What is an insurance?

What is insurance? 

Insurance is the French word that means “assurance, guarantee". Coming to our understanding, Insurance means protection from financial loss when risk arises. It’s nothing but financial rescue in the form of RISK MANAGEMENT. 

Insurance Definition: 

Insurance is an agreement or a contract arranged or represented by a company in the form of a policy, in which an individual or an entity receives financial protection or compensation from the insurance company in case of specified loss, damage, illness, or death. The specified party can get compensation in the form of payment. 

“Insurance is described as the equal transfer of the risk of loss from one entity to another in exchange of payment”. 

History of Insurance: 

  • Insurance has been also found in the 3rd century Before Christ Hindu scriptures such as Dharma Shastra, Artha Shastra, and Manu Smriti. Marine loans were given by Ancient Greeks. If the voyage prospers, money was advanced on a ship or cargo, to be repaid with large interest. 
  • In the 18th century, June 1583, the earliest life insurance policy was taken in the name of William Gibbons for twelve months in the Royal Exchange, London. 
  • Nowadays Insurance become more sophisticated under Insurance Act with more companies having different policies. 

Common Man Questions 

The first question is “Why do we go for Insurance", the answer is simple we get money from insurance companies in case of loss. 

The second question is “Why Insurance company  pay for us “, the answer is we should pay some premium amount to the concerned company in the form of a policy under the agreement  

“How do we approach an insurance company". Nowadays so many insurance companies when do search for it an insurance agent from the specified company can contact us and they can explain their company policies and its types of terms and conditions. 

Features and Characteristics of Insurance: 

            The significant feature of taking an insurance policy is a “Legal agreement or contract between two parties who are an insurer and insured. The insurer promises to compensate the loss to the insured according to the policy agreement. 

           The second important feature is, that the insured also should pay a certain amount in the form of a premium up to some tenure. 

Characteristics of insurance: 

  • Contract for compensating losses. 

  • Premium is charged for the Insurance Contract. 

  • The payment of Insured as per terms of the agreement in the event of a loss: sharing of risk 

  • It is a contract of good faith. 

  • It is a contract for mutual benefit. 

  • The future contract for compensating losses. 

Types of Insurance Policies: 

Life is uncertain, we cannot predict the future, it may be unplanned expenses, bitter or truth anything so we have to secure our life financially to meet sudden unforeseen expenditures While we cannot plan arising contingencies, Insurance policies gave support to us to minimize financial inability, depending on the extent of the emergency, such instances may also leave you debt-ridden. 

Insurance policies will hide medical expenses, vehicle damage, loss in business or accidents while traveling, etc. insurance and General Insurance are the 2 major varieties of coverage. General Insurance will additionally be classified into sub-categories that clubs of varied varieties of policies. These are:

 

There are many insurance policies to safeguard our health and assets. 

Mainly, there are eight types of insurance policies offered by Insurance companies are 

  • Life Insurance 
  • Travel Insurance 
  • Health Insurance 
  • Property Insurance 
  • Vehicle Insurance 
  • Mobile Insurance 
  • Bit-size Insurance 
  • Mobile Insurance. 

Life Insurance: 

One will avail the insurance so as to guard the family because of premature death or death throughout the tenure of the policy. It provides the family with a payment once somebody meets with an untimely death. This helps the bereaved family to battle with money struggles that will occur in absence of a wage earner.

It is an agreement done by an individual (policyholder) and an insurance company. Some of the best life insurance companies in India is LIC.

Travel Insurance: 

It is a type of insurance offered by an insurance company to the Policyholder in case of anything wrong on the trip. 

Health Insurance: 

The health insurance policy either reimburses the medical costs or offers cashless treatment. It covers medical expenses for surgeries, hospitalization, and daycare procedures. 

Property Insurance: 

 Property insurance is offered by an insurance company to the policyholder in case of damage to goods, fire accidents, etc. 

It is the same for the remaining types of insurance policies. The insurance company can pay the loss of damage or they can pay the entire amount after the completion of the insurance period. 

For Example: If a Policyholder can take a Life Insurance Policy and he pays a premium amount of Rs5000 every three months for the amount of 25 lakhs for five 20 years policy, he paid for five years, unfortunately, he met with an accident and passed away, his family can get the whole amount from the respective insurance company where he paid, or he completed his 20 years policy in his lifetime at that time also an insurance company can pay the whole amount along with interest which he gets on 20 lakhs. 

   

Benefits of Coverage

Insurance performs varied functions and comes with multiple edges. Below are a number of its most basic benefits, alongside a number of the secondary and therefore the rest are further ones. The fundamental functions of coverage are:

1. Provides Protection
Insurance coverage will cut back the impact of loss that one bears in unsafe things. It provides financial compensation throughout money crises. It does not solely protect the insured from money woes but also helps in checking mental stress arising out of it.

2. Provides Certainty
Insurance coverage gives assurance to the policyholders. The insured pays a little portion of the financial gain for this certainty which will facilitate the future. So, there's a certainty of handsome help against the premium. it'll defend the policyholder once met with accidents, hazards, or any vulnerabilities.

3. Risk Sharing
The very manner in which insurance functions makes it a cooperative scheme. AN insurer is unable to pay from one’s capital amount. AN insurance firm pools in collective risks and premiums as a result it covers an oversized variety of risk-exposed individuals. The payout to the one who claims coverage is out of this fund. Thereby, all policyholders share the danger of the one who really suffered the loss.

4. Worth of Risk
An insurance policy assesses the degree of risk and additionally anticipates the varied causes of it. It evaluates the quantity for coverage and therefore the premium payment amounts on a risk-worth basis. It safeguards against unforeseen events and eventful loss.

Functions of Insurance Policy

1. Capital Generation
The fund generated from the varied premiums acts as a pooled investment for the insurance company. The insurers invest this payment into securities industry instruments. For example, in stocks, mutual funds, and different productive channels. This helps in generating financial gain and profit for the business. It guards against the loss of capital for the corporate.

2. Economic process
Insurance policies organize domestic savings into allowing monetary stability. It additionally directs toward loss mitigation because of harm or destruction to the insured community. It not solely equivalently spreads the risks but additionally promotes trade and commerce by utilizing the fund.

3. Saving Habits
Insurance policies facilitate drill saving habits among people. They keep a little financial gain to pay premiums which will act as a guard for unknown future predicaments. Several insurance plans come back as insurance-cum-savings or insurance-cum-investment schemes. This additional encourages individuals to avoid wasting and investing.
Types of Insurance Coverage

Unit-linked Insurance Plan
The unit-linked Insurance setup is an investment-cum-insurance setup. The premiums give coverage furthermore as they're for the acquisition of units of market-linked equity, debt, and different instruments. This has the potential to supply a chance for wealth creation except for the life cowl provision.

Life Insurance Coverage Plans additionally accompany tax edges below Section 80C.

Types of  General Insurance Coverages

General Insurance Covrages

Non-life insurance policies are treated as general insurance policies that embrace insurance coverages for home, auto, education, etc. as mentioned below:

1. Insurance
You can obtain insurance for yourself or for your family which will embrace your partner, parents, siblings, and youngsters. Some insurance firms have tie-ups with hospitals. Therefore here you'll be able to use your policy variety to avail of cashless services in-network hospitals. In different cases, you'll be able to claim compensation for hospitalization and coverings. Do check the coverage of the kind of disease/illness/health issue. Also, verify what style of prices area unit coated.

2. Education Insurance
Education insurance may function as an investment scheme. You pay premiums by the time your kid is eighteen years archaic or attains a definite age as determined by the insurance. you'll be able to have a payment with obligatory laws that you just can use for a child’s academic functions and not the other. Use an education calculator to estimate the quantity you'll want once the kid grows up. Such calculators are typically provided by insurance firms or insurance-providing sites.

3. Home/Property Insurance
If synthetic or natural calamities damage your valuable property then this policy will cover the loss and supply financial aid. Losses because of thievery, floods, or other mishaps are often eased.

4. Motor/Auto/Vehicle Insurance
This is one of the necessary policies in current times. Initial of all, it protects your valuable asset against road accidents or other injuries and covers the losses. Secondly, the traffic rules counsel you to carry insurance papers while driving.

5. Travel Insurance
You may have seen that you just get a choice to obtain insurance for marginal prices once booking a rail or air price ticket. As an alternative, you'll obtain travel insurance if you're a frequent flyer and particularly if you travel internationally. You'll claim for bag loss, trip cancellation, or delay on the wing.

Apart from the types of insurances mentioned on top of, there are miscellaneous coverage policies for furnishings, goods, machines, etc. There are different styles of insurance like insurance (damage because of fire), Marine Insurance (for load ships), Tenant Insurance, Landlord’s Insurance, and so on. Group Medical Insurance Policies usually cover the staff of a corporation if the latter has any.

 

Conclusion: 

   The insurance sector is one of the most booming industries in India. When compared to developed nations (9% to 15%) the penetration level of insurance is 2.3%. 

Most of the population in India almost 33% were insured, there are huge markets in the future for Insurance Products. There is scope for growth in life insurance. Insurance is the largest investment where we can buy many policies from different companies throughout our lifetime, and get more benefits. 

The good thing about having insurance is that it prevents burning a hole into your pocket at unexampled times. It offers you money to help with your losses and injury. The essential performance of all kinds of insurance coverages is to produce control to the insured by transfer during a ton of individuals who pay to hide their risks. The fund is used for capital formation through investment within the markets. This helps the insurance firms to stay running and settle/adjust the claims of the insured individuals. It conjointly boosts the economy.

Life insurance can improve the economy through long-term investments. 

Hence, Insurance is a method of protecting ourselves and our beloved ones from any financial crisis 

  

FAQS

1. Why do I want Life Insurance? 

Ans: To meet unexpected risks in life, immediate obligations to your family, business partners, or lenders, term insurance can provide you with a short-term solution. 

2. What type of coverage is available? 

There are two types of term insurance policies, they are Group insurance policy given by an employer to an employee which covers retirement plans, medical expenses, and automatic deductions from salary to pay insurance premiums every month. And the second one is an Individual insurance policy is a policy taken by an individual from the insurance company to meet sudden uncertainties. It is very convenient and flexible. 

3. How can I upgrade my current policy? 

This is a very great feature that provides flexible future benefits and essentially allows us to trade an old policy for a new policy for paying more premiums, which may be higher. 

4. Where do I buy a policy? 

Several online insurance companies there, offer term insurance policies. 

5. Is insurance identical to Life Insurance?

Term Insurance is the commonest type of insurance wherever you pay the premium for the pre-decided term. If you expire within the term period, the cash you're insured of is given to the family. however, it remains with the insurance firm if you survive through the term policy’s tenure. In contrast to term plans, whole insurance or endowment plans pay upon maturity furthermore if you outlast the term. Some Pension Plans, or post-retirement plans additionally carry coverage. One is to pay the premium up to a definite time. You receive the secure quantity upon maturity. The family gets the cash upon the untimely death of the insured.