Insurance is an ancient concept. The first form of insurance emerged to limit the loss of goods during inland transit by the Chinese and Babylonian traders. The concept evolved over time to become the modern business of providing protection against various risks. Now, the insurance industry is well established and still evolving with time and need of the consumers. So, what is the insurance policy? Let’s understand the concept of insurance, basic features and benefits offered by various types of insurance.
Insurance definition/ insurance meaning
Insurance is a legal contract between two parties –individual or entity who receives financial protection (referred to as insured) and the insurance company that promises to compensate the losses (referred to as insurer) in return for the money (premium) paid by the insured. In simple words, insurance provides protection
Basically, the concept of insurance is to spread the risk of an individual or an entity among larger society. Insurance is a risk management mechanism wherein you transfer your risk to the insurance company by paying them the premium.
How does insurance work?
When you buy an insurance policy, you make regular payments to the insurance company for the amount of risk cover that you seek. Insurance companies pool the money paid like this by individuals and entities and then use them to compensate for the losses and damages arising out of insured events. Though it looks simple, insurance is a complex business. To understand about insurance contract, you need to be aware of its components, jargons and terminologies used in the contract.
Let’s take a look at some of the important insurance jargons.
- Insurer: Insurer is the party in the insurance contract who underwrites an insurance risk or the one who provides you with the financial coverage during an unforeseen event
- Insured: Insured is the party in the insurance contract whose interests are protected by the policy
- Insurable interest: Insurable interest is the prerequisite for every insurance policy. A person or entity seeking insurance has an insurable interest in the subject matter when any damage or loss would impact in financial hardship
- Beneficiary: An individual who is eligible to receive the insurance proceeds if the insured person dies
- Sum insured: Sum insured is the maximum amount that the insurance company will pay you if the insured event takes place
- Co-payment: Co-payment of copay is a fixed amount or a percentage of the claim amount that insured needs to pay before the insurer compensates the remaining.
- Deductible: Deductible is the pre-decided portion of the loss that is paid by the insured.
Types of insurance
There are various insurance products available in the market. List of insurance types is non-exhaustive. However, insurance policies are broadly categorised as follows:
What is life insurance?
Life insurance is an insurance contract wherein the insurance company promises to pay a designated beneficiary a sum of money (sum assured) in exchange for a premium in the event of insured’s death. The life insurance plan provides coverage for a specific period. Apart from term insurance, which is a pure form of insurance, there are many variants in life insurance that also come with savings element attached to it.
Importance of life insurance
Life insurance is one of the most important financial products in your portfolio. Following are some of the major reasons for which you need life insurance cover.
- To avail future financial security for your loved ones even when you are not around
- To secure your children’s future educational and other needs
- For your family to deal with unpaid debts in your absence
- To save for your golden years through pension plans
- To achieve your long-term financial goals by way of disciplined investments into an endowment or unit-linked insurance plans.
- To avail tax benefits under Section 80C of the Income Tax Act
Advantage of life insurance
Life insurance products come with numerous benefits depending on the policy that you avail. Here are the key benefits offered by life insurance plans or investments:
- Safety and security: Death is unavoidable. But, unfortunate events like death can have a financially devastating impact on dependants. Life insurance provides the needed protection during the demise of the family of the insured. The lump-sum amount can help the family achieve financial stability. Ultimately, by protecting the loved one’s life insurance gives you peace of mind.
- Wealth creation: Life insurance plans like money back plans, endowment plans and unit-linked investment plans come with ‘investment’ component attached to it. This helps you in building wealth for you and your family’s future.
- Tax benefits: Life insurance is one such financial product that gets favourable tax treatment. The premiums you pay towards life insurance policy qualifies for tax deduction under Section 80C of the Income Tax Act, thus help you save tax. Lump-sum proceeds of life insurance are free from income tax under Section 10 (10D) of the Income Tax Act.
What is general insurance?
General insurance is an insurance contract that does not come under the scope of life insurance. General insurance gives protection for the things we value such as our health, vehicles, home, business and many other things. There are various types of general insurance products available to provide protection against every possible risk.
Importance of general insurance
General insurance is important to lead a risk-free life. Risk is associated with everything that we own and value such as home, bike, car and business. Also, health is our true wealth. It’s important to protect our health also. Following are the reasons that make general insurance an important need.
- To avail protection for your valuable assets against man-made and natural calamities
- Insurance keeps you financially prepared for any kind of mishaps
- Insurance for your business helps you maximise the profit and continue to grow without hassles
- It’s important to be insured to deal with emergencies effectively.
Advantage of general insurance
There are a variety of general insurance products available in the market to cover numerous risks and uncertainties. Following are some of the common benefits offered by general insurance plans:
- Provides financial security for your health and assets during unforeseen events
- Lowers your tax burden by way of tax benefits and reliefs
- General insurance provides coverage against a wide array of risks and helps you deal with contingencies effectively and efficiently.
The process to apply for insurance
Insurance plans based on your need can be bought online instantly. It is quite easy and simple to buy insurance through Turtlemint. Following are the simple steps to buy insurance online:
- Log on to Turtlemint home page
- Choose the category of insurance
- Once you click on the category, various types of insurance available are displayed. For example, if you choose ‘life insurance’ category types of life insurance plans available will be displayed
- Select the type of plan you are looking for
- Provide your profile details such as gender, marital status, date of birth, income details and contact details and more depending on the plan type you have chosen
- Once you submit the profile details, a wide range of plans available for the particular type of insurance you have chosen will be displayed
- You can compare the plans of various insurance companies on the side by side basis and select the right one as per your needs
- Once you choose the right plan, provide the relevant details and continue to make payment
That’s it! Details needed may differ depending on the insurance type you are buying.
Frequently Asked Questions
- What is whole life insurance policy?Whole life insurance policy is a policy that gives you life-long protection along with building cash value. A portion of the premium that you pay is used for building cash value. The policy will remain in force as long as the insured is alive.
- What is underwriting in insurance?Underwriting in insurance is the process of assessing the risk based on various factors surrounding the subject matter to be insured. For example, in life insurance policies risk is assessed based on age, health history, medical reports and many more.
- What is the free-look period in insurance?Free-look period is the time given by insurance companies to the new policyholders to cancel the policy without any penalties if the policyholder is not satisfied with the terms and conditions. However, the reason needs to be stated for the cancellation of the policy.
- What is the period of general insurance policies?Generally, most of the general insurance policies are for one year. And the policies are renewable on an annual basis.
- Are natural calamities covered under motor insurance?Yes. Any damage or loss caused to the vehicle due to natural calamities such as flood, earthquake, cyclone, tempest, landslide and rockslide etc. is covered.