Insurance is defined as a financial instrument that provide a risk coverage against any loss occurred what one could insure. It is an invisible product and pays out a lump sum of money either on the loss or damage to replace it in a certain period of time. In this article you have to see in detail about insurance and its types.
It is also defined as one of the most effective risk management financial tool that provide protection to the thing one could insured from financial losses. The primary usage of insurance is to provide risk coverage against a contingent risk or any uncertain loss.
Insurance is offered by an insurance company that they collect a certain amount of money from the people and provide an assurance for the coverage of the insured thing with some terms and conditions.
Hence, insurance policy is a contract made between the insurance company and the policy holder to provide claims to the insured in terms of loss of the insured thing in exchange of a premium.
The person or a company who buys an insurance from an insurance company is called as policyholder. For managing a risk, the policy holder transfers their potential loss cost to the insurance company by exchanging a fee, called as premium.
Human life is made up of the happening of unexpected and uncertainties. So, they may not have enough money for the uncertain loss or damage of the things to replace or compensate it. Here the way people will transfer their loss to the insurance company through a contract called insurance policy.
Categories of Insurance
There are two major categories of insurance in the insurance industry. Under that categories there are many types of insurance available to insure all the things that what people having themselves. The categories of insurance are as follows.
- Life Insurance
- Non-life or General Insurance
In these two categories of insurance contains many combinations of coverage and benefits that helps people to avail it according to their need.
1) Life Insurance
Life insurance is a contract between the life insurance company and the life insured, where the insurer promises to pay a sum of money or how much the life insured took a coverage himself to the designated beneficiary, upon the death of insured person.
It is one of the few investment options that provide financial security to the people along with maturity benefit, including tax benefits. Even though having these much of benefits, the primary objective of life insurance is to provide financial security or income replacement for their family in the event of life insured’s death.
Human life is made up of the happening of unexpected and uncertainties. So, it is important to the people, who has a financial dependent would benefit from investing in life insurance.
Life Insurance is not only providing security to the insured life, beyond that for achieving their life goals it plays an important part in their life. For that life insurance is designed in various types to fulfill the different goals in different stages of their life even the life insured is alive or not. The different types of life insurance are as follows.
It provides only life coverage of life insured in the event of death in specified policy term. Now a days the term insurance is available in the form of returning of premium that the life insured will get the paid premium at the end of the policy term.
It provides life coverage along with the maturity benefit as lump sum or in a period of time as income. In this type of insurance, the premium paid by the people have invested in various Government bonds and securities, which provide guaranteed returns. Depends on the maturity benefit it is categorized in to various plans as follows.
- Whole Life Insurance
- Savings and Investment Insurance
- Endowment Life Insurance
- Child Life Insurance
- Moneyback Insurance
ULIP Life Insurance
This type of insurance is same as traditional insurance that it guaranteed only the life coverage of the insured and the premium paid by the people are invested in unit liked products, which is not guaranteed. But the maturity benefit depends on the market movements and profit arrived in the share market.
Retirement Life Insurance
It is the combination of either traditional or ULIP insurance along with life coverage of insured. Depends up on the age the returns are changed as per the type of policy.
2) Non-Life or General Insurance
As the name itself, other than human life all asset owned by an insured, which may be having the chance of risk for loss or damage can covered under general insurance. In general insurance, almost everything can be insurable as per the acceptability of the insurance companies. The following are the different type of life insurance in India.
- Health Insurance
- Motor Insurance
- Home Insurance
- Marine Insurance
- Commercial Insurance
Other than these above type of insurances, general insurance company offers some of the unique insurance policy that provide protection to human life in some uncertain incidents happening in a specified period. The following are the insurance offered under general category for covering the human life in an affordable cost.
- Accidental Death Insurance
- Accidental Death and Disability Insurance
The above insurance provide only coverage in the event of death or disability due to accident only.
Working of an Insurance
As said above, it is a contract made legally between the life insured and the insurer. The insurance company will provide claims to the nominee or life insured as the per the conditions or circumstances mentioned in the policy document.
Insurance is the one which one can protect themselves and their loved ones from facing any financial crisis. But the same time by buying an insurance, the insurance company provide coverage against a risk involved in policyholder’s life at a specified premium.
The nominee or insured could file a claim in case of any eventuality, the insurance company evaluate and review the claim as per the conditions mentioned in the policy document to settle the claim.
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