Insurance is a legal contract between two parties i.e. the insured and the insurance company; it is also known as insurance coverage or insurance policy which can be purchased from an insurance company in exchange of premium.
The insurance company provides financial protection against the losses incurred by the policyholder. Under an insurance policy, the insurer provides coverage to the policyholder in the event of regular premiums payment. Coverage is provided to the insured in case of damages, death or disability as per the policy terms and conditions.
Insurance: Definition and Meaning
Insurance can be defined as a contract between the insurance company and the insured, offering financial protection against unpredictable events. Insured is the policyholder whereas, the insurer is the insurance providing company, also known as underwriter or insurance carrier. Financial protection is provided to the insured in cashless form or reimbursement.
In exchange for the coverage provided by the insurance company, the insurer has to pay a premium which is decided based on various factors such as age, income, requirement, etc. The coverage is offered to the insured based on policy terms and conditions.
Insurance: Coverage Features
Given below are a few features of insurance:
- It is a risk management tool that acts as a hedge against an uncertain loss
Under insurance, the policyholders pool in their money and pay the premiums. Hence, when one or a few incur any loss, the claimed money is offered from the accumulated amount
Insurance coverage is provided for medical expenses, property loss, vehicle, mobile phones, etc.
The main components of an insurance policy are the premium, deductible and the policy limit. Hence, when buying the policy, it is imperative that the policyholder checks on these aspects
Insurance: Coverage Benefits
An insurance policy comes with multiple benefits and given below are a few of them. The policy provides financial reimbursement in case of financial crisis, thus providing peace of mind. Given below are few of the benefits of insurance.
Provides Protection:
In the times of financial crisis, insurance provides monetary compensation, thus saving the insured from financial woes and thereby ensuring peace of mind.
Risk Sharing:
Under insurance, money is pooled in from various policyholders. The company takes collective risks and premiums, covering a large group of risk exposed people. The payout in case of any uncertainty is made from the fund. Thus, all the policyholders share the risk of the one who actually suffered from the loss.
Provides Certainty:
With insurance, policyholders get a sense of assurance since the risk is handled by the insurer. Insurance protects the policyholder in case of accident, hazards or vulnerabilities.
Savings:
Insurance policies, for instance, life insurance helps the policyholder inculcate the habit of saving money. This, thus, encourages people to save and invest.
Types of Insurance
Insurance policies are classified in the below types i.e. general and life insurance. General insurance is further categorized in categories such as health insurance, motor insurance, home insurance, etc.
1). Life Insurance
This type of insurance helps you protect your and your family’s financial future by providing you coverage for a specific period of time. Lump sum amount is given to the nominee in the event of death of the insured. This, thus, helps the grieving family overcome financial struggles that may otherwise occur in the absence of the policyholder.
2). Few of the types of life insurance are
term insurance, ULIP, endowment plan, retirement plan, money back plan, etc.
3). Endowment Policy
An endowment policy pays out to the policyholder under both circumstances i.e. even on death and survival. One part of the premium paid is allocated towards life cover while another part is invested.
4). Money Back Policy
In simple terms, a money back plan offers periodic payments to the investor. The periodic payments made are generally a fixed percentage of the sum assured.
5). Whole Life Insurance Policy
As the name suggests, this type of policy provides coverage to the policyholder as long as he survives. The policy is designed to cover individuals up to the age of 100 or whole life even.
6). Unit Linked Insurance Plan
Under this insurance, a part of the premium you pay is invested in the market, while the other part is invested towards providing you life cover. Investing in ULIP gives you a chance to choose the funds you want to invest in.
General Insurance
1). Health Insurance
Health insurance protects the health of the family including spouse, parents, siblings, children. Insurance companies have tie ups with hospitals where one can avail cashless hospitalization.
2). Motor Insurance
Buying third party insurance is mandatory as per the law as it offers coverage against damages caused to third party or property. One can also choose to buy a comprehensive policy as it covers damages caused to third party as well as own damages.
3). Travel insurance
Travel insurance covers an uncertain event that takes place when you are traveling. Events such as flight cancellation, baggage loss, flight delay, etc. are covered.
4). Home Insurance
This type of insurance provides coverage to property, covering financial loss and providing monetary aid. Losses caused due to flood, theft, mishaps are covered.
