What is insurance?
In technical terms, this is a form of risk management where the insured entity transfers the cost of potential loss to another entity in exchange for a small financial compensation. This compensation is called premium. Simply put, it’s like giving a handful of money to an entity to protect yourself from potential harm in the future. That way, when something bad happens, the insurer will help you get through the situation. (What Is Insurance?)
Why do we need insurance?
Everyone has this question in mind. Do I really need protection? Life is full of surprises; Some good, some bad. You need to be more discriminating with the help you render toward other people. It helps you feel safe and secure. There are many reasons why you may need help, such as a serious illness, a natural disaster or the untimely death of a loved one. Adequate insurance in such situations provides an important helping hand for your financial situation. Therefore, one should choose the right kind of protection according to their needs.(What Is Insurance?)
Types of insurance:
1. Life Insurance
Life protection is a traditional form of insurance, designed to protect you and your loved ones from a catastrophe or disaster. It was originally designed to protect the income of the family. But since then, it has become the only alternative to saving resources from a security measure. The need for life cover is calculated on various factors such as number of dependents on an individual, current savings, financial goals etc.(What Is Insurance?)
2. Any type of coverage
except general insurance life comes under this section. There are several types of insurance that cover almost every aspect of your life according to your needs: a. Health insurance covers your medical and surgical expenses that may occur during your lifetime. Generally, health insurance provides cashless benefits to listed hospitals.(What Is Insurance?)
A. Health insurance
covers your medical and surgical expenses that may occur during your lifetime. Generally, health insurance provides cashless benefits to listed hospitals.(What Is Insurance?)
B. Motor insurance
covers damage and liability related to a vehicle (two wheeler or four wheeler) in different situations. It provides protection against vehicle damage and provides cover for third party liability as defined by law against vehicle owners.(What Is Insurance?)
C. Travel insurance
covers you from emergencies or losses during your travels. It covers you against unseen medical emergencies, theft or loss of luggage.(What Is Insurance?)
D. Home insurance
It covers the house and / or interior contents depending on the scope of the policy. It protects the house from natural and man-made disasters.(What Is Insurance?)
E. Shipping Insurance
covers goods, cargo, etc. from possible loss or damage during transit.
F. Commercial insurance
It provides solutions for all sectors of industry such as construction, automotive, food, energy, technology etc. The need for risk protection may vary from person to person but the basic function of an insurance policy remains more or less the same.
How does insurance work?
The most basic principle behind the concept of insurance is ‘risk pooling’. A large number of people are ready to get insurance against a certain loss or damage and for this, they are ready to pay the desired premium. This group of people can be called insurance pool. Now, the company knows that the number of interested people is much higher and it is almost impossible for all of them to need insurance cover at the same time. As such, it allows companies to raise money at regular intervals and settles claims when such conditions arise. The most common example of this is self insurance. We all have car insurance, but how many of us have claimed it? Thus, you pay for the probability of loss and get insurance and you will be paid in the event of a paid event. So when you buy an insurance policy, you pay a regular amount to the company as a premium for the policy. If and when you decide to make a claim, the insurer will pay the compensation covered by the policy. Companies use risk data to calculate the probability of an event – seeking insurance for what is happening. The higher the probability, the higher the policy premium. This process is called underwriting. The company seeks only the actual value of the entity that is insured under the insurance contract between the parties. For example, if you have insured your ancestral home for 50 50 million, the company will only consider the actual value of the home and there will be no emotional value for the home for you, since it is almost impossible to price on emotion.
Different policies have different terms and conditions, but the three main general principles remain the same for all types: the cover provided for a property or item does not take into account its actual value and the value of any feeling. The possibility of a claim should be spread among the policyholders so that the insurers are able to calculate the risk of setting a premium for the policy. Damage should not be intentional. We have covered the first two points above. The third part is a little more important to understand. An insurance policy is a special type of agreement between the insured and the insured. It is an agreement of ‘absolute good faith’. This means that there is an unspoken but very important understanding between the insurer and the insured that is not usually in the regular contract. This understanding includes the obligation to disclose fully and not to make any false or intentional claims. This obligation of ‘good faith’ is one of the reasons that a company may refuse to settle your claim if you fail to provide them with all the necessary information. And this is a two-way street. The company has a ‘good faith’ obligation towards the client and failing to do so can cause many problems for the insurer.
Conclusion Each term economic plan is supported by risk protection. A suitable cover for you is determined by your needs and current financial situation. The costs covered in your policy should be reviewed and re-evaluated and its impact on your current financial health should be assessed. There are many ifs and buts involved but the basics of the job are fixed for all types of insurance. You must be clear about what kind of risk protection you are buying, why you are buying it and what is included in the contract. It is also important for both parties to work in ‘extremely good faith’ so that the whole insurance process is crystal clear and less hassle-free. And for every financial product, you must be well-versed and well-informed about the product you are buying and get the proper advice from your financial advisor.(What Is Insurance?)
1. What is a risk pool?
Risk pooling means a small pool of individual pools with good insurance rates and money for coverage plans. Purchasing power improves because instead of going to the insurance company as an individual, you are contacting it as a company. This can be done by the company or co-operative society on behalf of the employees. Insurance companies also do risk pooling. They combine to protect each other with insurance coverage
2. Why would I purchase insurance?
With a policy, you can effectively transfer a potential loss to an insurance company. You can do this for a fee exchange known as ‘insurance premium’. The advantage of insurance is that it protects your savings at an unprecedented cost.
3. Who will benefit if I purchase an insurance?
Both the insured and the insured benefit when you purchase an insurance policy. As insured, you are safe in the knowledge that you will be protected against any potential loss. Similarly, insurance companies use the money you pay as premiums to create better business models and assets.
4. What should I look for when buying insurance?
When you purchase an insurance policy, you should check your premiums and coverage. These should be tailored to your needs.
5. What is ‘underwriting’?
Underwriting is a service provided by the insurance company where the companies act as guarantors to the insured persons. However, insurance companies may ask individuals seeking underwriting services to provide shares or enrichment as security deposits.
6. Are the terms different based on the policy I purchase?
Yes, the terms of the policy will vary depending on the type of insurance policy you are buying. Insurance There are mainly two types of life insurance and home insurance. Subordinate insurance covers health, travel, home, corporate and vehicle insurance. Depending on the policy you purchase, your terms, conditions and premiums will vary.
7. Can I purchase multiple insurance policies?
Yes, one can buy different types of policies. There is no limit to the number of life insurance policies an individual can purchase. However, for a car, you only need to buy a car insurance policy.
8. Is there any compulsory insurance?
Yes, it is mandatory for vehicle owners to purchase a car insurance policy Otherwise, you will get into legal trouble.
9. What is the importance of health insurance?
A health insurance policy or medical insurance will protect you from unprecedented medical or hospitalization costs. If you purchase medical insurance, your savings will be protected if you suddenly have to be hospitalized. All costs, such as doctor’s fees, hospitalization charges, ambulance fees, OT charges and medicines, will be covered by the insurance policy. That way, your savings will be protected.
10. What is insurance premium?
An insurance premium is an amount that the insured person has to pay to the insurance company in installments in order to purchase the policy. When you purchase an insurance policy, the risk is transferred to the company. Therefore, the company charges a fee, which is known as an insurance premium.
11. How is the premium calculated?
Insurance companies use arithmetic calculations and statistics to estimate the value of insurance premiums that they will charge their clients. Different parameters are used to calculate premiums for different insurance policies. For example, when calculating premiums for a medical insurance policy, age, health, medical history and other similar factors are considered. Similarly, in the case of other insurance policies, life history and credit score are taken into consideration.
12. Can I get premium refund if I do not claim insurance?
If you cancel your life insurance policy after paying regular premium, you can claim at least partial premium refund. However, it will depend on the terms of the insurance policy. But you cannot claim premium when the policy expires.