What is Insurance?
Just the way we need an umbrella on a rainy day, we need insurance for financial protection from uncertainties in life. Insurance is considered the most effective risk management tool to protect ourselves and our families from emergencies or contingencies. There would be psychological and emotional losses which cannot be compensated. Financial loss can be covered with insurance. If you have comprehensive insurance cover, be rest assured that the financial risk will be covered.
Insurance definition: It is a legal contract between two parties. One is the insurance company and the other is the individual. In the contract, the insurance company promises to compensate the insurer for the financial losses suffered due to contingencies. The compensation will be according to the previously agreed upon terms. In return, the insurer will pay a premium to the company.
When you buy insurance, you simply transfer the risk to the insurance company. You can buy insurance for different types of risks, ranging from risk to your life to risk to vehicles.
How does it work?
When you understand the meaning of insurance and how it works, you will be in a better position to choose the right policy for yourself. Insurance works on the grounds of risk pooling. If you buy a policy from an insurance company for a certain amount and specific period, it is important that you make the regular payments for the same. The company will collect this premium from all customers and will pool the money to make up for the losses one insurer suffered. Whenever you make a claim, the insurance company will pool the resources from the total premiums collected and will compensate you for the same. If you do not make a claim, there is no benefit that is paid to you. You can find unique products that have an element of savings attached to them.
Different types of insurance
Insurance companies in India offer several types of insurance products. They are classified as:
Life Insurance: There is nothing that we can do to stop death or predict it. A life insurance policy offers financial protection to your loved one in case of this unfortunate event. There are variants of life insurance. Whole-life insurance, endowment plans, unit-linked investment plans and money-back plans are some of them. Insurance is a good way to save for the future as there are some policies offering a blend of savings and protection.
The general insurance products will cover the financial losses that can be caused due to risks other than death. They also come in different types and cover a range of risks, like those associated with car, marine, health, travel, commercial, home insurance, etc.
The requirement of insurance varies from one person to another. But there are some products that are common to all. These include life insurance, health insurance and vehicle insurance. You can enhance the coverage based on your needs and financial requirements.
Importance of insurance
An insurance policy will not only benefit you but also your family. Let us consider the importance of insurance.
Peace of mind
When you buy insurance, you can enjoy protection against different risks that could put you and the entire family in a deep financial crisis. If you cover these uncertainties by way of insurance, you can enjoy a sense of security and have peace of mind. You can remain rest assured that your family will be well taken care of even if you are no longer around. Additionally, if you have health insurance, you have a sense of security that a medical emergency will not drain all your savings.
Reduces riskThrough a risk transfer mechanism, insurance helps control the risk and reduce it. Since the risk is transferred to the insurance company, you do not have to worry about the financial expenses in case of a car accident or a fire in your home.
When you buy insurance, you get tax benefits on the premium amount you pay. This will depend on the type of insurance product you have bought. The premium paid for a life insurance policy will qualify for tax deduction under Section 80C of the Income Tax Act. Further, the amount of premium paid towards health insurance will qualify under Section 80D of the Income Tax Act.
The meaning and scope of insurance is simple and straightforward—cover different types of risks. It is important to ensure that you have the right insurance policy at all times.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.