What is insurance? , Importance, Types and Benefits of Insurance |
A person’s life and property are exposed to risks of death, disability or destruction. These risks can result in financial loss. Insurance is a smart way to transfer such risks to the insurance company. Insurance transfers all the risks to the company, and if you have taken the insurance, you are paid for those risks. Read this entire article to get more information about insurance.
What is insurance?
Insurance is a legal contract between two parties i.e. insurance company (insurer) and individual (insured). Insurance is a way of managing your risk. When you buy insurance, you buy protection against unexpected financial loss. If something bad happens to you, the insurance company pays you or someone you choose. If you do not have insurance and an accident occurs, you may be responsible for all associated costs.
How does insurance work?
The insurance company and the insured enter into a legal contract for insurance, which is called an insurance policy. An insurance policy contains the details about the terms and conditions under which the insurance company will pay the sum assured to the insured or the nominee. Insurance is a way of protecting yourself and your family from financial loss. Generally, the premium for a comprehensive insurance cover is very less in terms of money paid. The insurance company takes the risk of offering a higher cover for a smaller premium because very few insured people actually claim the insurance. Because of this, you get a higher amount of insurance at a lower cost. Any person or company can obtain insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to take a decision. Generally, insurance companies refuse to insure high risk applicants.
What types of insurance are available in India?
Insurance in India can be broadly divided into three categories:
As the name suggests, life insurance is insurance for your life. You buy life insurance to ensure that your dependents are financially protected in the event of your untimely death. Life insurance is especially important if you are the sole earning member of your family or if your family is highly dependent on your income. Under life insurance, in case of death of the policyholder during the term of the policy, the family of the policyholder is financially compensated.
Health insurance is bought to cover medical expenses for expensive treatments. Different types of health insurance policies cover a wide range of diseases and ailments. You can buy general health insurance policies as well as policies for specific diseases. The premium paid for a health insurance policy usually covers the cost of treatment, hospitalization and medicine.
In today’s world, car insurance is an important policy for every car owner. This insurance protects you from any untoward incident like an accident. Some policies also cover damages caused to your car during natural calamities like flood or earthquake. It also covers third party liability where you have to pay damages to other vehicle owners.
Child education insurance is similar to a life insurance policy specially designed as a savings tool. Education insurance can be a great way to provide a lump sum amount when your child reaches higher education age and enrolls in college (18 years and above). This money can then be used to pay for your child’s higher education expenses. Under this insurance, the child is the life assured or beneficiary, while the parent/legal guardian is the owner of the policy. You can estimate how much money your children’s higher education will cost using the education plan calculator.
We all dream of having our own house. Home insurance can help cover loss or damage caused to your home due to accidents like fire and other natural calamities or perils. Home insurance covers other cases like lightning, earthquake etc.