Insurance

The term insurance is very common these days. It is a legal agreement between two parties, which are the insurer and the insured. In this agreement, the insured pays a certain amount in the form of a premium, and the insurer promises to cover the losses under certain conditions that may or may not arise in the future. The document containing terms and conditions to provide financial assistance or coverage is known as an insurance policy, and the person insured is called the policyholder. The insurance sector in India is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). It is a statutory body formed under the Insurance Regulatory and Development Authority Act, 1999. There are many companies that provide insurance services to the general public in India. Life Insurance Corporation (LIC), HDFC Insurance, MaxLife Insurance, and Tata AIA Insurance are some of them. The important characteristics of insurance are:

• It is a risk management tool in which an insurer covers the risk of policyholders suffering uncertain losses under unprecedented circumstances.
• Various clients of an insurance company that share similar kinds of risks pay the premiums together. In other words, they pool their risks together. So, when one or a few of them incur losses, the claimed money is given out of these accumulated funds.
• It assures that the loss is shared and distributed among multiple people so that the financial burden can also be reduced on the part of policyholders.

Broadly, there are two categories of insurance. These are life insurance and general insurance. These are discussed as follows:

Life insurance: As the name suggests, it insures the life of the policyholder. He can insure his life for a particular period or throughout his lifetime. Based on this condition, it can be further divided into two categories: term life insurance and permanent life insurance.

1. Term life insurance: It is generally more affordable than permanent life insurance. In this type of insurance, the policyholder pays a certain amount of premium to the company for a specified number of years. At the time of maturity, it can also be renewed on a year-to-year basis. The insurance company settles the claim in the event of the death of the policyholder. However, the amount remains with the company if the person survives till the maturity of the term life insurance policy.
2. Permanent life insurance: Its policies provide coverage to the policyholder for his entire lifetime, paying benefits to the nominees or beneficiaries no matter when the policyholder passes away.

General Insurance: Any insurance other than life insurance falls under this category. It can be used to cover losses theft, fire, or medical expenses. It is further classified as-

1. Health Insurance: It is the most common type of insurance. Some insurance companies have tie-ups with hospitals where policy holders can use their policy number to avail cashless services for treatment. Or they can request reimbursement if they get their treatment done in another hospital that does not have a tie-up with the insurance company of the policyholder. This type of insurance helps reduce burden, of medical expenses and treatment, from the shoulders of policyholder.
2. Education insurance: Parents or guardians can also insure the education of their children. In this insurance policy, parents have to contribute a certain amount of premium (which is calculated by the insurance company) till their children attain 18 years of age or any other age specified by the company, and after reaching the maturity period, this claim settlement can be used to pay for the education expenses. However, parents cannot use this insurance claim other than that of education expenses.
3. Property insurance: It covers losses due to man-made or natural calamities. Loss due to fire, flood, or theft falls under this category. Many shopkeepers and business person insure their shops and business premises so that they can claim or reimburse any losses to their stock or valuables.
4. Vehicle insurance: This type of insurance provides coverage for our vehicles against road accidents. Moreover, traffic rules suggest that every vehicle on the road should be insured. And it is considered to be illegal to run a vehicle on the road without having insurance papers.
5. Travel Insurance: This type of insurance is very helpful for those who travel a lot, especially international travellers. Persons with travel insurance can claim losses due to baggage loss or flight delays. However, this type of insurance is one of the most expensive insurance products available in the insurance market.

It is essential that we know about each type of insurance before we decide which type suits us best. If it is purchased attentively, it can save thousands or more when unexpected situations arise. It is suggested that every person should purchase a comprehensive insurance policy whichever is best suited to him, as it is very beneficial to share the risk and financial burden in the time of emergency. Moreover, financial experts also recommend to have an insurance policy in a portfolio.