Insurance Meaning: Insurance is an arrangement in which an entity (called the insurer, which is normally an insurance company) guarantees to provide compensation to the insured (policyholder) upon the happening of a specified event or loss. This promise or guarantee is made by the insurer by collecting a small upfront fee, which is called premium, from the insurer. The term of such agreement is decided by a written contract, which is called policy.
Example:- An insurance company (insurer) promises to pay the policyholder (insured) a sum of Rs. 10.00 lacs if the policyholder is diagnosed with an event (cancer) after 6 months from the date of the agreement (policy terms) for meeting the medical expenses (claim), by making an upfront payment of Rs. 2000/- (premium).
The insurance policy has details about the condition and circumstances under which the insurance company will pay out the insurance amount to the insured person or his nominee. So insurance is a way of safeguarding the possible financial loss to you and your family members in the event of any unforeseen happening.
The insurance companies collect a large pool small premium subscription from a number of policyholders, & pay the claims to those who sustain a loss in terms of the document which they have signed with the company. The insurance companies take risk of providing high cover for a small premium because there may be very few persons filing their claims as against a large number of policyholder paying a small premium or regular basis.
That is why you can get insurance for a big amount at a low cost. Any individual can seek insurance from any company, but it is at the discretion of the insurance company to provide such insurance. The insurance company will evaluate the insurance proposal in the light of the insurer’s profile, the risk involved and the probability of occurrence of subject event. Considering this factor, the insurance company will fix the premium.
Broadly there are two types of insurances
- Life Insurance
- General Insurance
As the name indicates, it is to ensure your life. You can buy life insurance to make your that your dependents are financially secured in the event of your untimely death. It may be a crucial decision in case your family is heavily dependent on your income. Under this policy, the family members of the policyholder are compensated up to the extent of sum assured if the insured is expired during the term of the policy.
It is a contract that offers financial compensation due to any loss other than death. General insurance compensates you for financial loss due to liabilities related to your house, car-bike, health, and travel and children education.
You can get anything and everything insured. But there are five key types of insurances that are generally popular
- Health Insurance:- It covers the cost of medical care. It pays or reimburses the amount that is paid towards the treatment of any inquiry or illness. It usually covers.
- Treatment of critical illness
- Medical bills prior to or post-hospitalization
- Daycare procedures like contract operation
You can also opt for add on benefits like
- Maternity cover
- Pre-existing Disease cover
- Accident cover
There are tax benefits also, that you can claim on premium given or health insurance policy.
- Vehicle Insurance
In India and in most of the country, you cannot drive unless your vehicle is insured. It provides financial protection against the loss caused to vehicles due to accidents, damage, theft, fire or natural calamities. Both cars and two-wheelers can be insured.
- Travel Insurance
It covers your financial losses arising out of medical and non-medical emergencies during your travel abroad or within the country; There are mainly two types of travel insurance.
- Single trip policy under 180 days.
- Multiple trip policy has taken within a year.
The followings loss are covered under travel insurance
- Baggage loss
- Emergency medical expenses
- Passport loss
- Delayed flight
- Accidental dealt.
This type of insurance is a cover that pays or compensate you to pay for damages to your home due to natural calamities, man-made disaster or other threats. It covers liabilities due to fire, burglary, theft, flood, earthquake, and sabotage. It not only covers the financial protection to your home but also takes care of the valuables inside the property. This type of insurance is normally taken while obtaining a home loan from any financial institution. Such policy also covers the unpaid loan outstanding that may be caused due to the untimely demise of the borrower. As a result of this type of insurance, the liability of the unpaid dues of the home loan does not pass to your family members. They are settled by the insurance company.
Tax benefit on Insurance
- Life insurance premium up to Rs. 1.5 lakh can be claimed under tax deductions under section 80c of the Income tax act.
- Medical Insurance premium up to Rs. 25000/- (Rs 30,000/- for senior citizens) for yourself and Rs. 25,000/- for your parents can be claimed as tax saving deductions under section 80D of the income tax act.