Insurance

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INSURANCE

Definition
Insurance is an agreement between an individual
policy (or a business) and an insurance company.
Under this agreement, the policyholder pays
premiums to the insurer in exchange for financial
compensation in the event of a covered incident. For
example, auto insurance will reimburse an insured
driver for the cost of auto repairs (up to a limit) after
an accident.
Also known as : indemnity, assurance, coverage
To explain what insurance is in simple terms: it’s a
way to protect your loved ones, property, business
and lifestyle from financial losses and unexpected
costs. By paying an insurance provider, you receive
coverage that will preserve your way of life in case
of unfortunate events. Some insurers, such as
Lemonade, offer several different types of insurance
policies, while other focus on a specific area. Read
on to learn about insurance, how it works and the
types of coverage available.
How does an Insurance Policy Work?
To understand how insurance works, you should
know below terms:
1.Premium: is the money you pay to the insurance
company to avail of insurance policy benefits.
2.Sum Insured: Sum insured is applicable for a non-
life insurance policy like home and health insurance.
It refers to the maximum cap on the costs you are
covered for in a year against any unfortunate event.
3.Sum Assured: Sum assured is the amount the life
insurance company pays to the nominee if the
insured event happens (death of insured).
How Insurance Works
Insurance is available to help you pay for damage to
your property or to pay others on your behalf when
you injure someone or damage their property.
Insurance is a contract that transfers the risk of
financial loss from an individual or business to an
insurance company. They collect small amounts of
money from clients and pool that money together to
pay for losses.

As discussed above, insurance is a legal contract


between the insurer and the insured. The insurance
policy lists all the policy’s conditions and
circumstances under which the insurance company is
liable to pay you or the nominee the insurance
amount.
When you buy an insurance policy from the
insurance company, you will have to make regular
payments (premium) for a specified period towards
the insurance policy.
The insurance company collects the premium from
all the clients. They pool the money for losses that
may arise out of an insured event. If you don’t claim
during the policy tenure, you may or may not receive
any benefits. It depends on the policy type and the
conditions.
Insurance Components
An insurance policy is made of multiple
components. Some of the important parts of an
insurance contract are:

 Premium: This is the financial consideration


which makes the insurance agreement a legally
binding contract.
 Policy Limit: Policy limit applies to health
and general insurance policies where
compensation depends on the amount of loss.
The policy may limit the maximum
compensation for certain types of losses.
 Deductible: Deductible applies to general
insurance and health insurance policies. A
deductible is the maximum amount of loss you
will bear out of your pocket. The insurer will
start paying only when your losses (or expenses)
rise above the deductible limit.
Types of Insurance Policies
You can divide the insurance based on the type of
coverage it is providing as below:

1.Life Insurance Policy


It is insurance on your life. You buy life insurance to
ensure that your loved ones are financially secured
even when you are not around. If you are the only
breadwinner, you would want your family members
to maintain the same living standards in the event of
your untimely demise. The nominee gets the sum
assured in case of your death.
2.Health Insurance Policy
Although health insurance is usually counted as a
general insurance contract, there are a few
differences. Health insurance covers your medical
costs for expensive treatments. You can avail two
types of health insurance policies:
a. Mediclaim Insurance, which compensates you
for the medical expenses
b.Critical Health Insurance, which offers lump-
sum payments for dangerous and life-threatening
health conditions.
3Non-life Insurance Policy
These compensate for the losses sustained arising
from a specific financial event that is not related to
life. Non-life insurance could be car insurance, home
insurance, etc.
You can avail insurance benefits under the following
two types of policies:
Because of these two variants health insurance falls
perfectly between general and life insurance
policies. Also, both health insurance policies are
important in ensuring complete financial safety for
you and your family.
Benefits of Insurance
There are a lot of benefits of buying insurance and
listed below are some of them:

Financial Safety for Family: They provide


cover against life’s uncertainties and protect
you against losses arising from different
unexpected events in life.
Safety of Financial Status: Certain events like
medical emergencies can have a significant
impact on your cash flow management.
Insurance ensures you don’t have to pay out
of pocket for such situations.
Wealth Creation Goals: Insurance policies like
ULIPs give you investment opportunities and
help you fulfil your essential financial goals.
Wealth Preservation: Life insurance policies
like endowment and moneyback plans are
some of the safest long-term investments
possible. These plans help you preserve your
wealth from inflation and taxes for long
periods.
Wealth Distribution: Few investment plans
offer the kind of safety offered by life
insurance pension plans. After retiring at the
age of 60, you can live up to 100. Only life
insurance pension plans can guarantee a
regular income for that period.
Must-Have Life Insurance Policies
Insurance plays an important role in our lives. Be it a
life insurance policy, or a motor insurance, having
insurance coverage helps us financially in different
stage of our lives.
Listed below are different types of insurance
coverage that one should have:
1.Term Insurance Plan:
This is the purest form of life insurance wherein you
pay a premium towards the policy, and in case of
your death during the policy tenure, the nominee
receives the sum assured. With term insurance, you
can receive high coverage against a lower premium.
iSelect Smart360 Term Plan by Canara HSBC Bank
of Commerce Life Insurance offers critical illness
cover against 40 listed illnesses.
2.Health Insurance Plan:
Knowing the rising cost of healthcare and the
number of diseases you can have, it is wise to have a
financial cushion against health contingencies

A health insurance plan will cover the expenses of


your healthcare expenses as per the health policy
that you have.
2.Motor Insurance:
A motor is mandatory for those who won a vehicle
in India.it is compulsory to avail of third party
liability motor insurance.however you can have a
comprehensive package personal accident cover
that offer coverage against risk of damage.
Vehicle insurance or motor insurance is similar to
any other insurance coverage, except that it is
mandatory. As the name implies, it is insurance for
all types of motor vehicles – motorcycles, cars,
jeeps, commercial vehicles, and so on. The
government has made motor insurance necessary
for your protection and the safety of others.
4.Home Insurance:
Your home is exposed to various kinds of risk like
theft, damage due to natural calamity, etc. Hence to
protect your home against such damages, you must
avail of home insurance.

Tax Benefits of Insurance


Along with providing financial security, insurance
also offers tax benefits. Here are some of the tax
benefits offered by insurance:
You can claim a life insurance premium of up to Rs
1.5 lakh under Section 80C.
Under Section 80D, you can claim a medical
insurance premium of up to Rs 25,000 for self and
family and additional Rs 25,000 for parents. The
deduction limit rises to Rs 50,000 if the insured are
senior citizens.
Under Section 10(10D), the life health benefit
received from a life insurance policy will be tax-
free.
However, the maturity benefit is tax-free only if your
annual premium for the policy does not exceed 10%
of the base life cover in the policy.
Get an Insurance to Stay Protected
Staying secured with insurance is a necessity in our
times. While many invest in different types of
insurances, not everyone knows about the many
advantages it offers. Insurance, like Life Insurance,
secures not only yours but also your family’s
financial future safely and affordably. Moreover,
investing in Life insurance encourages a regular
habit of saving money. Thus, it empowers you to
build a significant corpus.
Insurance plans such as term plans and health
insurance plans from Max Life Insurance helps you
safeguard yourself and your family’s financial
standing and lets you earn multiple other benefits.
So, now that you know ‘what is insurance?’, how it
works, you should consider taking the one that suits
you and stay secured!
What are the 7 functions of insurance?
 The functions of insurance can be listed as
follows:
 They provide certainty to the insured.
 They ensure the protection of the family.
 They are risk-sharing policies.
 They prevent the damages that can come from
loss.
It provides capital.
 It’s known for improving efficiency.
 It helps in boosting the economy.
What are the 7 pillars of insurance?
There are seven basic principles applicable to
insurance contracts relevant to personal injury and
car accident cases:
1.Utmost Good Faith.
2.Insurable Interest.
3.Proximate Cause.
4.Indemnity.
5.Subrogation.
6.Contribution.
7.Loss Minimization.
Basic Principles of Insurance
In the insurance world there are six basic principles
that must be met, ie insurable interest, Utmost good
faith, proximate cause, indemnity, subrogation and
contribution.
Insurable Interest
The right to insure arising out of a financial
relationship, between the insured to the insured and
legally recognized.
Utmost good faith
An action to disclose accurately and completely,
all facts material (material fact) about something
that will be insured is requested or not. The
meaning is: the insurer must honestly explain
everything clearly about the extent of the terms /
conditions of the insurer and the insured must also
provide a clear and correct for objects or interests
of the insured.
Proximate cause
Is an active cause, efficient cause that chain of
events that lead to a result without the intervention
of the start and working actively from a new and
independent.
Indemnity
One mechanism by which the insurer provides
financial compensation to place the insured in a
financial position that he had prior to the loss
(Commercial code article 252, 253 and affirmed in
section 278).
Subrogation
Right transfer request from the insured to the
insurer after a claim is paid
Contribution
While the insurer the right to invite any other
person equally bear, but do not have the same
obligations to the insured to participate in
providing indemnity.
What are the 7 rules of insurance?
In insurance, there are 7 basic principles that
should be upheld, ie Insurable interest, Utmost
good faith, proximate cause, indemnity,
subrogation, contribution and loss of
minimization.
Features of Insurance Coverage
Insurance coverage has the below mentioned
salient features:

It is a kind of risk management plan to use an


insurance policy as a hedge against an uncertain
loss
Insurance coverage does not mitigate the
magnitude of loss one may face. It only assures
that the loss is shared and distributed among
multiple people
Various clients of an insurance company pool in
their risks. Hence, they pay the premiums together.
So when one or a few incur a financial loss, the
claimed money is given out of this accumulated
fund. This makes each client bear a nominal fee
Insurance coverage can be provided for medical
expenses, vehicle damage, property loss/damage,
etc. depending on the type of insurance
Premium, policy limit, and deductible are the main
components of an insurance coverage policy. The
policy buyer should check them thoroughly while
buying an insurance policy
Reasons to buy an insurance policy
As we said at the start, most people think
insurance is an unnecessary expense. The reason is
that we feel confident about our future and our
ability to tackle unseen circumstances. But there is
a huge difference between our perceived ability
and reality. For instance, a few years of savings
can vanish in case of a medical emergency. That’s
just one example.

Here are 3 reasons why getting insurance is


important

1.Insurance ensures the family’s financial


stability
No matter how much you have managed to save or
what your monthly income is, an unexpected event
can burn a huge hole in your pocket or can simply
jeopardize your family’s financial future.
For example, if you do not have adequate life
insurance, your family might have to go through
financial hardship if you were to meet with an
untimely death. Though no amount of money can
replace the loss of loved ones, having life
insurance would save them from going through
financial hardship. Meanwhile, if you or your
family do not have enough health insurance, then
huge medical bills during any treatment can
completely shake your finances.

So you must cover yourself, and your family with


an adequate amount of insurance.

2.Insurance brings peace of mind


The premium you pay to the insurance company is
the price that guarantees that the insurance
company will cover the damage in case of an
unforeseen event. And, that guarantee that your
risk is covered brings peace of mind.
For example, let’s suppose you die an untimely
death at a time when you still have several
milestones to achieve like children’s education,
their marriage, a retirement corpus for your
spouse, etc. Also, there is a debt as a housing loan.
Your untimely demise can put your family in a
hand-to-mouth situation. But, if you had bought
term insurance considering all these factors, your
family would have been able to sail through the
hard times.

3.Insurance reduces stress during difficult


times
No matter how hard you try to make your life
better, an unforeseen event can completely turn
things upside down, leaving you physically,
emotionally, and financially strained. Having
adequate insurance helps in the sense that at least
you don’t have to think about money during such a
hard time, and can focus on recovery.
For example, suppose you or someone in your
family had a heart attack and needed immediate
hospitalization. Such treatments at good hospitals
can cost lakhs. So having health insurance in this
case, saves you the worries and stress of arranging
money. With insurance in place, any financial
stress will be taken care of, and you can focus on
your recovery.
Insurance companies may provide any
combination of insurance types, but are often
classified into three groups:

 Life insurance companies, that provide life


insurance, annuities and pensions products and
bear similarities to asset management
businesses
Non-life or property/casualty insurance companies,
which provides other types of insurance.
 Health insurance companies, which sometimes
provide life insurance or employee benefits as
well
 General insurance companies can be further
divided into these sub categories.

 Standard lines
 Excess lines
 Excess lines
In most countries, life and non-life insurers are
subject to different regulatory regimes and
different tax and accounting rules. The main
reason for the distinction between the two types of
company is that life, annuity, and pension business
is long-term in nature – coverage for life assurance
or a pension can cover risks over many decades.
By contrast, non-life insurance cover usually
covers a shorter period, such as one year.

Mutual versus proprietary


Main article: Mutual insurance
Insurance companies are commonly classified as
either mutual or proprietary companies.[59]
Mutual companies are owned by the
policyholders, while shareholders (who may or
may not own policies) own proprietary insurance
companies.
Demutualizations Mutual insurers to form stock
companies, as well as the formation of a hybrid
known as a mutual holding company, became
common in some countries, such as the United
States, in the late 20th century. However, not all
states permit mutual holding companies.

Reinsurance companies
Reinsurance companies are insurance companies
that provide policies to other insurance companies,
allowing them to reduce their risks and protect
themselves from substantial losses.[60] The
reinsurance market is dominated by a few large
companies with huge reserves. A reinsurer may
also be a direct writer of insurance risks as well.
Captive insurance companies
Main article: Captive insurance
Captive insurance companies can be defined as
limited-purpose insurance companies established
with the specific objective of financing risks
emanating from their parent group or groups. This
definition can sometimes be extended to include
some of the risks of the parent company’s
customers. In short, it is an in-house self-insurance
vehicle. Captives may take the form of a “pure”
entity, which is a 100% subsidiary of the self-
insured parent company; of a “mutual” captive,
which insures the collective risks of members of
an industry; and of an “association” captive, which
self-insures individual risks of the members of a
professional, commercial or industrial association.
Captives represent commercial, economic and tax
advantages to their sponsors because of the
reductions in costs they help create and for the
ease of insurance risk management and the
flexibility for cash flows they generate.
Additionally, they may provide coverage of risks
which is neither available nor offered in the
traditional insurance market at reasonable prices.
The types of risk that a captive can underwrite for
their parents include property damage, public and
product liability, professional indemnity, employee
benefits, employers’ liability, motor and medical
aid expenses. The captive’s exposure to such risks
may be limited by the use of reinsurance.

Captives are becoming an increasingly important


component of the risk management and risk
financing strategy of their parent. This can be
understood against the following background:
1.Heavy and increasing premium costs in almost
every line of coverage
2.Difficulties in insuring certain types of fortuitous
risk
3.Differential coverage standards in various parts
of the world
4.Rating structures which reflect market trends
rather than individual loss experience
5.Insufficient credit for deductibles or loss control
efforts
What is General Insurance?
“To insure is to protect and indemnify. It does not
mean Prevention of loss”.

General Insurance is a type of insurance policy


that covers the financial loss suffered due to the
loss or destruction of the insured asset.

Insurance is our saviour from any unexpected


situation that might disrupt our normal life and
well-being. There are two types of Insurance, viz.
Life Insurance and General Insurance. While
people have slowly realised the importance of Life
Insurance and have become aware of it, they are
still unaware of the varied list of General
Insurance products that cover a diverse range of
risks. Thus, it is imperative to dive into the topic
of General
Insurance and understand the different types of
General Insurance Policies available in the market.
Essentially, a general insurance policy covers only
non-life risks. It has the following features:

 It is a policy or agreement between the


policyholder and the insurer, which is
considered only after the realization of the
premium.
 The policyholder with a financial interest in
the covered asset pays the premium.
 The insurer will protect the insured from
financial liability in case of loss.
Different Types Of General Insurance
Almost everything under the Sun that you can
call an asset can be insured. However, in India,
General Insurance is majorly classified into
the following types:

1.Health Insurance
2.Motor Insurance
3.Property Insurance
4.commercial insurance
5. Asset insurance
6.pet insurance
7.bite sized insurance
1. What are the 5 major types of insurance?
The five major types of insurance are:
o Life Insurance
o Health Insurance
o Fire Insurance
o Marine Insurance
o Vehicle Insurance

2.What are the characteristics of insurance?


The characteristics of insurance are as follows:
o A contract
o Undertaking of risk
o A cooperative device
o Payment of policy amount on the happening of
events
o Premium
o Contract of adhesion
o Protection

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