What is insurance, how is it?
PERSONAL FINANCE INSURANCE
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.
Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.
Insurance means protection from risk. If an insurance company insures a person, then the insurance company will compensate for the financial loss caused to that person.
How Insurance Works
There is a multitude of different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them—for a price. The most common types of personal insurance policies are auto, health, homeowners, and life. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.
Insurance is actually a contract between the insurance company and the insured. Under this contract, the insurance company takes a fixed amount (premium) from the insured and pays the insured person or company compensation in case of any loss according to the terms of the policy.
Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.
There many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.
The core components that make up most insurance policies are the deductible, policy limit, and premium.
What is the type of insurance?
Generally, insurance is of two types:
Life insurance covers the life of a person.
Life Insurance: Life insurance means that on the death of a person who buys an insurance policy, his dependent gets compensation from the insurance company.
If the head of the family dies prematurely, then it becomes difficult to manage the expenses of the household. It is necessary to take a life insurance policy to save the wife / child / parents etc. of the main person of the family from financial crisis. In financial planning, it is suggested to first of all buy a life insurance policy.
General insurance includes vehicles, houses, animals, crops, health insurance, etc.
Home Insurance: If you insure your home with a general insurance company, then there is protection of your home. After purchasing an insurance policy, if your house suffers any kind of damage, then the insurance company pays for it.
Coverage from any damage to your home is included in this insurance policy. Damage due to natural disaster to the house includes loss due to fire, earthquake, celestial lightning, flood etc. Artificial disaster includes theft in the house, damage to the house due to fire, fighting and riots etc.
Motor Insurance: In India, it is very important according to the law to insure a vehicle running on the road. If you drive your vehicle on the road without insuring it, then the traffic police can fine you. According to the motor or auto insurance policy, the insurance company gives compensation for any damage done to the vehicle. If your vehicle has been stolen or caused an accident, then auto insurance policy can help you a lot.
You get the most benefit of an auto insurance policy when a person has been hurt or someone has died from your vehicle. It is covered under Third Party Insurance. If you also have a two-wheeler / three-wheeler or car, then it should be insured.
Health Insurance: Nowadays the cost of treatment is increasing very fast. The insurance company covers the cost of treatment in case of illness when taking health insurance. Under the health insurance policy, the insurance company gives the amount spent on treatment in case of any kind of disease. The extent of expenditure on a disease depends on your health insurance policy.
Travel Insurance: Travel insurance protects against loss during a trip. If a person goes abroad for some work or to travel and he gets hurt or the goods are lost, then the insurance company gives him compensation. Travel insurance policy is valid only from the beginning of your journey till the end of the journey. The condition of different insurance companies may vary for travel insurance policy.
Crop Insurance: According to the current rules, every farmer taking an agricultural loan is required to buy crop insurance. Under the crop insurance policy, the insurance company gives compensation to the farmer for any loss to the crop. Under the crop insurance policy, compensation is given by the insurance company in case of crop failure due to fire, flood or due to some disease.
Because of the condition of crop insurance policy being too stringent and not getting compensation according to the cost, farmers are not very enthusiastic about crop insurance right now. In fact, to pay compensation for crop failure, insurance companies survey all the fields around that farm and compensation is given only when the crop of most farmers is damaged.
Business Liability Insurance:
Liability insurance is actually to compensate the loss of a company’s work or product to a customer. In such a situation, the penalty incurred on the company and the entire cost of legal proceedings has to be borne by the insurance company that does Liability Insurance.
Insurance Policy Components
When choosing a policy, it is important to understand how insurance works.
A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs. For instance, whole life insurance may or may not be the right type of life insurance for you. There are three components of any type of insurance (premium, policy limit, and deductible) that are crucial.
PremiumA policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness.
For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork.