Nowadays, everything has become very expensive, especially Health-related and Daily Life needs, so Insurance has become very important for us. We hear the word Insurance a lot every day, but some people still remain confused about What is Insurance?, how it Works, its Types, Importance, and Benefits. So, let’s discuss it in detail.
What is Insurance?
Unexpected events can happen at any time in life, which can result in huge Expenses. Insurance is a contract that protects us Financially from Unexpected Events such as Accidents, Diseases, Damages or Certain Losses. We pay a fixed amount, called Premium, and in return, th Company protects us from major losses.
How Insurance Works
Insurance works on a simple idea: many people pay a fixed small amount, and the Company uses this amount to compensate people who have suffered an unexpected loss. We can explain how Insurance works simply this way:
- You buy an Policy directly from the Company or through a Broker.
- You pay a small amount regularly (Monthly/Yearly) to the Company which is called Premium.
- If a Sudden Event occurs (such as Accident, Damage, Loss and Death), you file a Claim.
- The Company verifies and compensates you according to what is Covered in your Policy.
Types of Insurance
Here are the main types of Insurance that are commonly used by people in India.
- Life Insurance – Provides money to your family in case something happens to you, which helps them financially in your absence, and in some plans, you also get savings for the future.
- Health Insurance – If you have a Medical Emergency or an Accident, Health Insurance helps you pay for Hospital Bills, Medicines and Treatment Costs.
- Motor Insurance – This is Mandatory in India for Cars, Bikes and Other Vehicles. It covers Accidents, Damage and Third-Party Losses.
- Travel Insurance – Helps you when you face any problem during your Trip. It covers risks like Lost Baggage, Trip Cancellation, and Medical Emergencies.
- Home Insurance – Protects your home against damage to the Building, Fire, contents inside the Home, Natural Disasters, etc.
- Crop Insurance – Provides Financial Support to Farmers when their Crops are damaged due to Floods, Pests, and other Natural Disasters.
- Business Insurance – overs losses caused to shops, offices and companies due to fire, theft, machinery or any other damage.
Benefits of Insurance
Insurance provides Financial Support for you and your family during difficult times. Insurance has many Benefits that everyone should understand. Its main benefits are as follows:
- Financial Security – It provides Financial Support to you and your family in case of Major Expenses arising in Emergency Situations such as Hospital Bills, Accident or Death etc.
- Benefits in Tax – There are many Insurance Plans which provide you protection as well as Tax Benefits like Life Insurance under Section 80C and Health Insurance under Section 80D.
- Peace of Mind – When we have insurance, we have Peace of Mind that if any Major Expense or Incident occurs suddenly, we are insured.
- Helpful in Saving and Investing – There are some Insurance Policies which provide protection as well as help you in Saving and Investing for the future like Retirement Plans, Child’s Future Plans, Money-Back Policies etc.
- Protection of your Family after You – If something happens to you and you have Insured, then Insurance helps your Family Financially after you.
Importance of Insurance
Insurance is important because if something unexpected happens in our lives, such as an Accident, Illness, or Major Loss, Insurance helps us through those times. If we have Insured, we don’t need to worry about how we’ll arrange for the money.
Saving money is no easy task for a typical Indian family. A sudden Major Loss or a huge Hospital bill can wipe out our entire Life’s Savings, or even more. However, if we have Insured, we feel secure and remain stress-free. That’s why Insurance is so important.
Key terms in insurance
- Premium – This is the amount you pay to the Company (Monthly/Yearly) in exchange for coverage.
- Policy – A policy is an document/contract that states all the terms and conditions and what is covered.
- Policyholder – The person who buys an policy.
- Claim – When there is a sudden loss and you ask the Company for Compensation, it is called a Claim.
- Insured – The Person/Thing that is insured or the risk covered.
- Sum assured – The maximum amount that the Company will pay you in case of a Claim.
- Nominee – The person who receives the money if something happens to the Policyholder.
- Deductible – This is the portion that you pay from your own pocket first and then the Company pays the remaining Expenses.
- Maturity – This is the date your Insurance Plan ends and you will receive your Money (only in some plans).
- Cashless Claim – In this, your Bills (mostly Health and Motor Insurance) are paid in advance by the Company and you do not have to pay from your pocket.
- Reimbursement Claim – In this, you have to pay your Bills (mostly Health and Motor Insurance) from your own pocket, after that you give the documents to the Company, which gives you the money after Verification.