June 01, 2019 4193
What is Insurance
Insurance is a legal agreement between an individual and the insurance company wherein an individual gets compensation against the losses from an insurance company. The insurance company work by collecting small amounts of money from its clients and funds that money together to pay for damages. In simple way, Insurance is a means of protection from financial or Life loss. It is a form of risk management. The terms are decided between the insurer and insured via an insurance contract.
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We will understand better with this example - the insurer [ABC] promises to pay the insured [XYZ] a compensation of Rs. 10 lacs (promise) if XYZ is diagnosed with cancer (event) after 6 months from start of policy (terms) and upfront payment of Rs. 2000 (premium).
Ancient history of Insurance
The industry dates back thousands of years. Babylonian and Chinese traders practiced distributing or transferring risk 3000-2000 years BC respectively.
The Babylonians had a system dating back to 1750 BC which covered merchants. If a merchant obtained a loan to fund his shipment, he would pay an additional fee to the lender.
The lender would subsequently cancel the loan if somebody stole the goods or if they fell into the sea.
At some time during the first millennium BC, citizens of Rhodes created the general average. This allowed merchant groups to pay to insure the goods that they were shipping together.
Premiums were collected and used to reimburse any merchant whose products were jettisoned during transport.
Insurance terms
Insured: The person or organization that is covered by insurance is called the insured.
Insurer: a person or company that promises to pay compensation for an insurance risk, is called the Insurer
Claims: An official request to the insurer by the insured asking for a payment based on the terms of the insurance policy.
Insurable risk: Risks for which it is relatively easy to get insurance.
Coverage: The amount of risk or liability covered by an individual or entity by way of the insurance services sector.
Policy: A contract for insurance between the insurance company and the policy holder.
Premiums: The amount charged for a certain amount of insurance coverage is called the premium.
Reinsurance: A re-insurer assumes part of a risk originally taken by the insurer, which is called the primary company.
Types of Insurance
Life is full of hidden dangers and risks that could happen anywhere and at any moment. When you driving a car, when you visit a new country, when you ride your bike to a nearby shop, when there’s a new bug going around in town and some unpredictable like, flood, earth quack, etc. So every human being need some safeguard for himself and for their family. The bottom line is you need the security of insurance.
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Majorly there are two broad types of insurance:
Life Insurance
General Insurance
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Types of Insurance |
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|---|---|---|---|---|---|---|---|
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Life Insurance |
General Insurance |
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Term Life |
Money-back policy |
Unit-Linked Insurance Plan |
Pension Plans |
Health Insurance |
Home Insurance |
Vehicle Insurance |
Fire Insurance |
What is Life Insurance
As the name suggests, Life Insurance is insurance on your life. Life insurance is a legal contract that offers financial compensation in case of death or disability. Some life insurance policies even offer financial compensation after retirement or a certain period of time. Life insurance helps you secure your family’s financial security even in your absence. You either make a lump-sum payment while purchasing a life insurance policy or make periodic payments to the insurer. These are known as premiums. Life insurance can help you support your family even after retirement. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of the policy.
Criteria of Life Insurance
Age
Health (past and current)
Your occupation
The type of coverage/plan
Your smoking and drinking habits
The sum assured
What is General Insurance
General Insurance is where there is no life involve. A general insurance is a contract that offers financial compensation on any loss other than death. It insures everything apart from life. A general insurance compensates you for financial loss due to liabilities related to your house, car, bike, health, travel, etc. The insurance company promises to pay you a sum assured to cover damages to your vehicle, medical treatments to cure health problems, losses due to theft or fire, or even financial problems during travel.
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Simply put, a general insurance offers financial protection for all your assets against loss, damage, theft, and other liabilities. It is different from life insurance.
Types of General Insurance
You can get almost anything and everything insured. But there are five key types available:
Health Insurance
Home Insurance
Vehicle Insurance
Fire Insurance
What is Health Insurance
This type of general insurance covers the cost of medical care. It pays for or reimburses the amount you pay towards the treatment of any injury or illness.
It usually covers:
Hospitalisation
The treatment of critical illnesses
Medical bills prior to or post hospitalisation
Day care procedures like Cataract operations
You can also opt for add-on benefits like:
Maternity cover: Your health insurance covers you for the costs related to childbirth. This includes pre-delivery check-ups, hospitalisation during delivery, and post-natal care.
Pre-existing diseases cover: Your health insurance takes care of the treatment of diseases you may have before buying the health insurance policy.
Accident cover: Your health insurance can pay for the medical treatment of injuries caused due to accident and mishaps.
Your health insurance can also help you save tax. Your premium payment can reduce your taxable income.
Criteria of Health Insurance
Your health history
Your family health history
Your age and gender
Occupation
The sum assured amount
The type of coverage/plan
What is Vehicle Insurance
Vehicle Insurance is for your car or bike what health insurance is for your health.
It is a General Insurance cover that offers financial protection to your vehicles from loss due to accidents, damage, theft, fire or natural calamities. You can also get Vehicle insurance for your commercial vehicles.
Without Vehicle Insurance driving a vehicle is a crime in India.
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Criteria of Vehicle Insurance
Make-Model of the vehicle
The type of coverage/plan
The value, age of your vehicle
Your claim history
What is Home Insurance
Home insurance is a cover that pays or compensates you for damage to your home due to natural calamities, man-made disasters or other threats.
It covers liabilities due to fire, burglary, theft, flood, earthquakes, and sabotage. It not only offers financial protection to your home, but also takes care of the valuables inside the property.
Criteria of Home Insurance
The size of your home
The type of coverage/plan
The age of your home and the systems installed therein
The location of your home
The sum assured
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What is Fire Insurance
Fire insurance is property insurance that covers damage and losses caused by fire. It covers the replacement, reconstruction or repair expenses of the insured property as well as the surrounding structures.
It also covers the damages caused to a third-party property due to fire.
Criteria of Fire Insurance
Location of the property / goods
Risk factors around the property
The sum assured value
The type of plan
Conclusion
Insurance is a great way to avoid the loss or shift it to another party. It also gives a sense of security to the individuals. It’s a protection for you and your family which reduce stress during difficult time and which give peace of mind.
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