What is insurance - Types of Insurance

An insurance is a contract that binds an insurer (an insurance firm) and an insured (an individual), providing the latter with financial security for potential losses under specified conditions.

The insured is required by an insurance policy to pay the insurer a regular sum of premiums. In the case of an unfavorable circumstance, such as the insured person's death or damage to his property, the insurer pays the insured a predetermined amount guaranteed.

What is insurance?

A literal definition of insurance would be a guarantee against unanticipated and regrettable loss. This implies that you are eligible for compensation if an unusual incident occurs throughout your regular course of life and you end up losing money as a result.

For instance, your car can sustain damage if you get into an accident while driving to work. In this instance, your insurance can cover the cost of the repairs. The insurer will not, however, pay for typical wear and tear, such as a broken headlamp.

Types of Insurance?

Insurance serves as a means of financial protection or mitigation against unanticipated events. After evaluating the potential hardship, the insurer makes the agreed-upon payment. "Sum Assured," "Sum Insured," "Insured Value," etc. are terms used to describe this amount. Understanding the good effects insurance can have on our lives is essential.

In today's financial strategy, insurance is no longer a "good-to-have," but rather a "must-have." Let us know which of the two main categories of insurance applies to you.

1. Life Insurance

You would have budgeted for a comfortable life based on your projected salary and career, just like any prudent person would. You and your family will have dreams of basic necessities like a nice home and a good education for the kids. 

But what if you're not going to be here to see those plans and ambitions come true? You can make financial arrangements for your family even if you are not around by purchasing a life insurance policy.

2. Term Insurance Plan

The purest type of life insurance is term life insurance. Term life insurance only provides a death benefit for a set amount of time. Having term insurance allows you to offer your family a sufficient financial safety net at a low premium cost. 

Life insurance can provide financial support in the event of a family income loss, but the emotional loss is irreplaceable. One type of term life insurance policy provided by Canara HSBC Life Insurance Company is the iSelect Smart360 Term Plan.

3. Child Insurance Plan

Over time, savings plans and child insurance policies like ULIPs increase in value as investments. They also give the policyholder a life insurance policy. These programs are ideal for funding your child's aspirations for a marriage and a college degree.

4. Unit Linked Insurance Plan (ULIP)

ULIPs are investment-complementary insurance plans that offer both investment return and life insurance. The nominee would get the Sum Assured in the tragic event that the policyholder passed away, or the policyholder would get the fund value after the policy term.

Partial withdrawals are also allowed with ULIPs. While all payouts are tax-free under section 10(10D), premium payments are deductible from taxable income under section 80C.

5. Health Insurance Plan

Financial assistance is provided by health insurance against unforeseen medical costs and medical emergencies. Mediclaim and critical illness health insurance plans are available for purchase. Medical bills and surgical costs can be covered by medical insurance, but critical illness insurance provides a lump sum payment for serious conditions.

6. Endowment Plans

In addition to providing your family with a safety net in the event of your untimely death, an endowment plan is intended to be a secure investing strategy. 

Endowment plans return the guaranteed principal amount plus any incentives and guaranteed annual increases, if any, at the time of maturity. The majority of endowment insurance provides lifetime coverage even after the maturity value is distributed.

How does an Insurance Policy Work?

Knowing the following terms can help you comprehend how insurance operates:

Premium

is the sum of money you give the insurance provider to receive benefits from your policy.

Sum Assured

The sum assured, in the case of an insured event (the insured person's death), is the amount that the life insurance company pays to the nominee.

Sum Insured

Sum insured applies to non-life insurance policies, such as health and house insurance. It speaks about the annual maximum cap on the expenses you are protected against in the event of an unfavorable occurrence.

Insurance is a legal agreement between the insurer and the insured, as was previously mentioned. The conditions and situations under which the insurance company is required to pay you or the nominee the insurance amount are detailed in the insurance policy.

You must pay the insurance company's premiums regularly for a predetermined amount of time after purchasing an insurance policy.

Key Features of Insurance?

The following are the main characteristics of an insurance plan that you ought to think about:

• One tool for transferring risk is insurance.
• Because multiple individuals who are exposed to the same risk pool their resources to cover the loss, insurance is a community solution.
• Unlike other corporate contracts, this one is founded on the "utmost good faith" basis.
• Insurance coverage has no effect on the likelihood of loss or reduces the severity of loss.
• It is your responsibility as a party to the insurance contract to make every effort to prevent, lessen, and minimize damages.
• Only hazards that are unforeseen in nature and amount can be insured against.
• Business, financial (betting), and speculative risks are not covered by insurance.