What is called insurance
Insurance refers to a financial plan that covers the risks or losses that have not been expected. Simply stated the insurance is an agreement between a person (policyholder) and an insurance firm (insurer). According to this contract, the policyholder is required to pay a fixed amount of money which is known as a premium and the insurance company undertakes to compensate him/her in case a certain loss or damage is experienced.
Life is uncertain. They can occur any time and some of the unexpected occurrences are accidents, illnesses, and natural disasters among others. Insurance provides the safety net that assists individuals, families and busines to regain their financial strength following such incidents. The burden of risk is not taken on by one policyholder, but it is distributed to a large number of policyholders.
Meaning of Insurance
The term insurance is derived out of the notion of guaranteeing a financial loss cover. It is a risk management approach. By purchasing an insurance, what you are doing is handing over to the insurance company the risk of a possible loss, financially.
To take an example, you own a car and it is always possible that it will hit an accident or be damaged. In case of car insurance, the insurance company would cover the costs of repair based on the terms of the policy. There would be no insurance to cover the whole amount.
How Insurance Works
The concept of insurance is the pooling of risks. A great number of individuals make premium installments into a general fund. When one suffers a loss that is covered, he or she gets compensated using money in this fund.
The following is the step by step working of it:
- You select a policy of insurance.
- You are charged a fee on a monthly or annual basis.
- When an accident or an illness occurs (and this is a covered event), you make a claim.
- The insurance company authenticates the claim.
- In case it is approved, the company makes compensations according to the policy terms.
Not all that pays premiums will suffer a loss simultaneously. This system assists the insurer to deal with the risk and give financial aids to the needy people.
Types of Insurance
Insurance comes in various forms that could address various needs:
1. Life Insurance
Life insurance is the financial security of your family when you die. The sum assured is a lump sum that is paid by the insurer to the nominee.
2. Health Insurance
Some of the medical costs that the health insurance covers include hospital bills, surgeries and treatments. It assists in the elimination of high healthcare costs.
3. Motor Insurance
Motor insurance is compensation in case of damage to cars due to accidents or theft or natural calamity. In several countries, third-party insurance is in the law.
4. Home Insurance
Home insurance covers your house and other properties against any kind of damage such as fire, theft, floods and earthquakes.
5. Travel Insurance
Travel insurance is a type of insurance that is applicable during travelling like loss of luggage, cancellation of the trip or even due to a medical emergency abroad.
Importance of Insurance
Insurance is a significant aspect in financial planning. It provides:
- Financial security
- Peace of mind
- Indemnification on huge unforeseen costs.
- Helping the family members in hard times.
- The stability of the business in the event of losses.
Indicatively, lakhs of rupees can be spent on medical emergencies. An effective health insurance plan can be used to avoid the stress of finances at such moments.
Key Terms in Insurance
In order to learn more about insurance, the following terms are essential:
- Premium: This is the cost of purchasing the insurance policy.
- Policy: The document between the insurers and the policyholders.
- Sum Assured: The highest sum that was paid under the policy.
- Claim: One that is presented to the insurer in a claim made in order to get compensation.
- Nominee: The individual that gets benefited in life insurance.
The Advantages of being insured
Guarantees against unforeseen costs of savings.
Supplies family with finances.
Promotes strict saving (in certain policies of life)
Assists companies to regain losses.
Minimizes stress in case of an emergency.
Insurance is not a cost; it is a financial insurance which guarantees your future.
The Importance of Insurance in the modern day
Medical expenses are escalating in the present world, accidents are frequent and natural disasters are unwelcome. Your financial stability is shaken by one emergency as you are not insured.
In the case of working individuals and families that are provided with insurance, their future achievements such as the education of children, marriage or retirement are not impacted by any unexpected circumstances. It serves as a shield against the distance.
In Conclusion
Insurance is a business contract that helps people and organizations to cover financial losses that are not anticipated. With the help of a small regular premium, you will be able to cover yourself and your loved ones against the great risks. Both life insurance, health insurance, or motor insurance have their purpose.
Simply, insurance is safeguarding, security and a feeling of tranquility. It does make you ready to face unexpected situations and guarantees you financial stability even in hard times.