Insurance is a critical component of financial planning, offering protection and peace of mind in the face of life’s uncertainties. Whether it’s health, life, auto, or home insurance, understanding the fundamentals can help you make informed decisions and ensure that you and your loved ones are adequately covered.
Insurance is a contract between the two parties i.e., insurer and the insured where insurer claims to cover the uncertain situations in exchange of some fixed amount known as premium, that needs to be paid by insured in fix intervals of time. Insured can be an individual or any business organization which pays fixed amount of money regularly over a fixed period of time to the insurance company which is basically the insurer. In return of this, the insurance company claims to protect the individual against the possible losses such as any illness, damage to the property or death. Reimbursement of the premium paid is possible either if any event happens or after the maturity of the policy. Various types of insurance are available such as health, life, auto etc. One can choose a set of insurance policies according to their needs.
How the Insurance Ecosystem Works –
There are multiple companies available in the market which provide different types of insurance at different premium price. Premium may vary from policy to policy and from company to company as each will provide different set of benefits. An individual can select the type of insurance from various options available such as health, life, auto, home etc.
Businesses take insurance policy to protect their products from getting destroyed due to any unforeseen activity such as fire, theft or any natural disaster. Some companies, which have any high risk involved job, provide protection to their employees. For example, a restaurant owner might protect its employees from the risk of any injury while cooking.
The ecosystem of insurance is very easy to understand. The individual or the business who want to get an insurance policy will contact an insurance company either physically or virtually. First, they need to select the type of insurance according to their need. Then after checking all the important factors, an amount is fixed by the insurance company generally known as premium, that needs to be paid every month by the insured party. When any event will happen, insurance company will provide them the claim according to their rules and policies.
Core Insurance Concepts –
Understanding the core insurance concepts is necessary to have a thorough knowledge about the insurance industry which will help in selecting a better insurance policy for an individual. There are few terminologies which needs to be understood. These are –
- Premium – To take any insurance policy, insurance companies set a fixed amount which is payable every month. This amount is known as premium. This amount varies from company to company and policy to policy as well.
- Policy Limit – Policy limit refers to the maximum amount an individual receives for the covered loss under the policy. It is generally dependent upon the policy term, per loss or injury or over the life of the policy. This maximum limit can be changed but as the limit will increase, the premium will also increase. In the case of general life insurance policy, this limit is known as face value, which will be given to the beneficiary after your death.
- Deductible – Deductible is the amount which insured party has to pay before claiming for any amount for the loss. The insurance company doesn’t provide cover for the complete loss amount. So, the remaining amount has to be paid by the insured.
Types of Insurance –
- Life Insurance – Life insurance is a type of insurance which protects the policyholder from the uncertainties of life. The policyholder has to pay a fixed amount known as premium that will be paid on daily, monthly, quarterly or yearly basis. It is a contract between two parties where insurer agrees to pay some amount in case of death of the policyholder or after the completion of the policy term whichever is earlier. The policy amount can be adjusted according to the need of the policyholder. Few factors are considered before deciding the premium amount such as age of the person, medical history and any type of smoking or drinking habits.
- Auto Insurance – Auto insurance protects the policyholder from the uncertainties caused during the driving of the vehicle. The insurance companies provide protection against –
- Damage to the car or theft.
- Any legal liability in case of accident of property damage
- The cost of treating injuries, rehabilitation care charges and funeral charges.
The auto insurance will protect you whether you are driving your own car or someone else’s car. This insurance policy will provide cover when you will be using the vehicle for your personal use only such as driving car to the work place or taking a trip. This insurance will not provide coverage if we will use it for commercial purposes such as riding car for cab facilities.
- Health Insurance – Health insurance is a contract between an individual and an insurance company where company pays the medical expenses in against of a fixed amount known as premium, which needs to be paid by the individual. It is basically a one-year agreement, where you will be paid for medical emergencies such as any injury, cost of medicines, doctor’s consultations, surgeries, pregnancy expenses etc. The agreement needs to be renewed every year to receive the benefits for the whole life. The amount of claim depends upon the premium. Higher the premium, more will be the amount of claim.
- Home Insurance – Home insurance provides protection to the property and the assets inside it. It covers the damage done to the property either from exterior or interior to the furniture or other assets. This insurance policy will provide cover to all the damage and losses to your residence. This policy generally covers four types of incidents – exterior damage, interior damage, loss of personal belongings and any injury that might occur while being on the property.
Insurance is a vital aspect of financial planning, offering protection and peace of mind. By understanding the basics of different types of insurance, assessing your needs, choosing the right policies, and staying informed about your coverage, you can safeguard yourself and your loved ones against unexpected events.
