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What is insurance? | Why do we need insurance? | Type of insurance? | insurance

Insurance

What is insurance?

We’ve all heard a lot about insurance. As a general perception, insurance is a thing that keeps you or the things that you have insured to maintain a heavy financial loss. But there is more to it than meets the eye.What is life insurance?

What is insurance?

In technical terms, it is a form of risk management so that the insured entity shifts the cost of potential losses to another entity in exchange for a small financial compensation. This compensation is called premium. Simply put, it is like paying a single sum to the entity to protect oneself from possible future losses. So, when something bad happens, the insurer helps you get the situation right.

Why do we need insurance?

Everyone has this question in mind do I really need protection? Life is full of surprises; Some good, some bad. You need to be prepared for the worst situations that may come your way. It helps you create that sense of security and peace. There are many reasons why you may need help, such as a serious illness, a natural disaster, or the untimely death of a loved one. Adequate insurance in such situations provides an important helping hand for your financial situation. So, one has to choose the right kind of protection according to their needs.

Type of insurance

Type of insurance?

Life insurance

Life protection is one of the most traditional forms of insurance designed to protect you and your loved ones from a catastrophe or disaster. It was originally designed to protect family income. Since then, however, it has evolved as a security measure or as an alternative to conservation. The need for life cover depends on a number of factors such as number of dependents, current savings, financial goals, etc.

General insurance

Any type of coverage other than general insurance life falls under this category. There are different types of insurance that cover every aspect of your life according to your needs:

Health insurance
  • Covers your medical and surgical expenses as it may arise during your lifetime. Generally, health insurance provides cashless benefits to listed hospitals.
Motor insurance
  • It covers the damage and liabilities associated with a vehicle (two-wheeler or four-wheeler) in contrast to different scenarios. It provides protection against vehicle damage and cover for third party liability in accordance with the law against the owner of the vehicle.
Travel insurance
  • This covers you from emergencies or losses while traveling. This includes unseen treatment against emergencies, theft or baggage loss, etc.
Home insurance
  • covers the contents of the house and / or the contents of the house depending on the scope of the policy. It protects the house from natural and man-made disasters.
Marine insurance
  • covers goods, cargo, etc. from possible loss or damage during transit.
Commercial insurance
  • provides solutions to all areas of the industry such as construction, automotive, food, electricity, technology, etc. Risk protection needs may vary from person to person but the basic function of an insurance policy remains more or less the same.

How does insurance work?

The most basic principle behind the concept of insurance is 'risk pooling'. A large number of people are ready to get insurance against certain loss or damage and for that they are ready to pay the desired premium. This group of people can be called as insurance-pool. Now, the company knows that the number of interested people is very high and at the same time the need for insurance cover is almost impossible for all of them. Thus, it allows companies to raise money at regular intervals and to dispose of when and where this condition occurs. The most common example of this is auto insurance. We all have a car insurance, but how many of us have claimed for it? So, you pay for the probability of loss and are insured and you will be paid if the given event happens. So when you buy an insurance policy, you pay the company a regular amount as a policy premium. If and when you decide to make a claim, the insurer will pay the damages covered by the policy. Companies use risk data to calculate the probability of an event - you seek insurance to make it happen. The higher the probability, the higher the policy premium. This process is called underwriting. Companies only look for the actual value of the entity that is insured according to the insurance contract between the parties. For example, if you have insured your ancestral home for Rs.

There are different terms for different policies, but the three main general policies are the same for all types:

  • The cover provided for a property or item does not take into account its actual value and the value of any feeling.
  • Policyholders need to spread the word of claim so that insurers are able to calculate the risk of setting a premium for the policy.
  • Damages are intentional Not at all.

We have covered the first two points above. The third part is a little more important to understand.

An insurance policy is a special type of agreement between the insurer and the insured. It is a pact of 'absolute faith'. This means there is an unspoken but very important understanding between the insurer and the insured that does not usually exist in a regular contract. This understanding includes the obligation to disclose fully and not to make any false or intentional claims. This duty of 'honest faith' is one of the reasons why an organization may refuse to settle your claim if you fail to provide all the necessary information. And this is a two-way street. The company has an obligation of ‘honest trust’ towards the client and failing to act on it can put the insurance provider in a lot of trouble.

Conclusion

Each term economic plan is supported by risk protection. The right cover for you is determined by your needs and current financial situation. Expenditure covered by your policy should be reviewed and re-evaluated and its impact on your current financial health should be assessed. Many IFs and boots are involved but the basic originality of the work rests on top of all types of insurance. You must be clear about what kind of risk protection you are buying, why you are buying it and what is in the contract. And as with every financial product, you must be skilled and informed about the product you are buying and get the right advice from your financial advisor.

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