What is Insurance?
Insurance is a legal agreement between two parties, represented by a policy, in which the insured (either an individual or an entity) receives financial protection from the insurer (an insurance company) so as to make good the losses faced in case of occurring of the insured contingency.
A contingency is nothing but an event that causes loss of any kind. It is called a contingency because the happening of the event is uncertain.
The insurer promises to reimburse the amount of loss faced by the insured in return of a certain amount called premium.
Let us Understand some of the Important terms related to Insurance Contract.
- Policyholder: a policyholder is the owner of the policy who purchases the insurance policy and pays the premium in return.
- Premium: it is the amount paid to keep the policy active. The policy terminates in case of non-payment of premium before due date.
- Policy Limit: it is the maximum amount which is paid by the insurer in case of loss.
Types of Insurance Policies:
Insurance policies can be classified into two broad categories which are
- Life Insurance
- General Insurance.
What is Life Insurance?
Life Insurance is an insurance contract where the insurer promises to pay an assured sum to the family of the insured in case of his/her death or disability or at a certain period of time.
It is a way to secure your family even in your absence. You can pay the premium either as periodic payments or in lump-sum at the time of purchasing the Life Insurance Policy.
Types of Life Insurance Policies:
- Term Insurance
- Whole Life Insurance
- Endowment Policy
- Money-back policy
- Unit-Linked insurance Plans (ULIPs)
- Child Plan
- Pension Plan
What is a General Insurance?
A general insurance is an agreement to pay financial compensation on any loss other than the loss of life. Thus, general insurance insures everything other than life. The insurer promises to pay the promised amount in case of damage caused to your home, vehicle, medical treatment, loss due to theft or fire, etc.
Types of General Insurance:
- Health Insurance
- Motor Insurance
- Travel Insurance
- Home Insurance
- Fire Insurance
What are the benefits of buying an Insurance Policy?
- It provides financial and economic protection against unexpected losses.
- It reduces or shares the risks and uncertainties.
- Buying an insurance policy encourages you to save and reduce less important expenses.
- It helps in taking loan from financial institutions or from the insurance company as well.
- The life insurance death benefit is not taxable. Hence you save on taxes.