What is insurance?
Published On Mar 29, 2023 10:00 AM By InsuranceDekho
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An insurance policy is a legal contract between an individual and an insurance company. The policyholder pays a certain amount of money in exchange for protection for life, health, and many other aspects. In India, there are many insurance companies that cater to the unique insurance requirements of individuals. In this blog post, we’ll walk you through the important terms, features, benefits, and types of insurance. Read on to find the details!
Understanding the Meaning of Insurance
Insurance is a means of protecting yourself and your loved ones from financial emergencies. It is a legal contract that binds both the insured and the insurance company. It contains all of the specifics about the criteria or situations under which the insured person or nominee will get insurance benefits from the insurer.
In the case of an unexpected incident, the insured or nominee may make a claim with the insurer. Based on the claim evaluation criteria, the insurer examines the claim application and resolves the claim.
Features and Benefits of Insurance
Insurance provides numerous benefits to policyholders. Some of them are discussed in the below section.
- Coverage Against Uncertainties
It is one of the most prominent and significant insurance benefits. The insurance plans protect insured individuals or organizations against losses. Purchasing the correct form of insurance policy is a good method to protect yourself from losses caused by various life risks.
- Investment Opportunities
There are certain insurance products that provide investment opportunities to policyholders. One example of such insurance is unit-linked insurance plans (ULIPs).
- Cash Flow Management
The risk of having to pay for losses out of pocket has a considerable influence on cash flow management. Yet, with the help of an insurance policy, you can deal with this uncertainty with ease.
Key Components of Insurance
Here are some of the key components of insurance:
- Sum Assured: A sum assured is a fixed amount paid to the plan's nominee in the sad event of the policyholder's death. The insurance company pays you the amount you specified when you purchased the policy.
- Premium: It is an amount paid by the policyholder to an insurance company to get coverage. A premium amount may vary depending on your policy tenure and the type of policy you’ve chosen.
- Claim Settlement Ratio: The claim settlement ratio (CSR) is the percentage of total claims settled by an insurance company in a given year. It serves as a barometer of their credibility. In general, the larger the ratio, the more dependable the insurance.
- Deductible: The deductible is the sum that a policyholder must pay out of pocket before the insurance provider begins to make payments. In other words, the insurance provider is only required to pay a claim when the amount is greater than the deductible.
Types of Insurance
Here is a list of the different types of insurance available in India.
- Life Insurance: A contract between an insurance policyholder and an insurance company in which the insurer agrees to pay a quantity of money in exchange for a premium upon the demise of an insured person or after a specific amount of time is known as life insurance.
- Health Insurance: Health insurance is a type of insurance that, in return for a premium payment, covers the insured's medical costs incurred from an illness or accident.
- Motor Insurance: Motor insurance is a policy that covers four-wheelers, commercial trucks, two-wheelers, and other types of road vehicles. It is mandatory for all vehicles to get insured under third-party insurance in India.
- Travel Insurance: Travel insurance is a policy that provides financial assistance if something goes wrong while you're on your business trip or vacation. Some of the expenses covered under travel insurance are loss of baggage, loss of passport, flight delays, and more.
In conclusion, in order to combat inflation in each sector, it is important to purchase an insurance policy. There are different types of insurance plans from which you can choose the one that suits your needs.
Also read: Reasons To Buy Endowment Insurance Plans