Types of Insurance
Don’t we all want to be financially secure? Don’t we want to protect ourselves from financial loss during times of risk or uncertainty? We might have heard our parents discuss securing things for the future, that have high price value or that may be dear to them. All of this is made possible because of ‘Insurance’.
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What is Insurance?
By definition, 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. In simple terms, it means that the insurer will indemnify the insured against loss during a specific contingency that is mentioned in the contract. There are various types of insurance like life insurance, health insurance, motor insurance, fire insurance, property insurance, and many more. The core components that make up most insurance policies are the deductible, policy limit, and premium. The insurance company guarantees to pay a certain amount of money as specified in the contract and it will do so by pooling the client’s risk to make payments more affordable for the insured.
Three Main Types of Insurance are :
- Life Insurance:
Life Insurance is a financial compensation that helps secure your family in case of death or disability. While taking the insurance you can either pay a lump-sum amount or make periodic payments to the insurer. Based on what it covers it can be classified into various types such as Term Insurance, Whole Life, Endowment Policy, Money-back Policy, Unit-linked Insurance Plans (ULIPs), Child plan, and pension plan. Insurance is not just security, it is a kind of investment since a certain amount is repayable to the insured at the time of death or expiry of the period.
- Property & Casualty Insurance:
During damages caused by fire, theft, or weather to your property this insurance comes into play. The compensation amount depends on the amount insured or the loss occurred whichever is less. Casualty insurance includes liability coverage to help protect you if you’re found legally responsible for an accident that causes injuries to another person or damage to another person’s belongings. Both of this insurance are typically bundled together in one policy.
- Health Insurance:
Health Insurance helps in reimbursement of the amount paid towards an injury, illness, or accident. In most developed countries the amount of insurance is covered by the government, paid through taxation; whereas in developing countries employers cover insurance for their employees.
Fun fact: The leading coffee chain Starbucks pays more for its employee’s health insurance than it does for coffee!
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Insurance is to be treated as an investment and it rightly said ‘better safe than sorry’. With the help of insurance, one can protect one ‘s life and important assets against all uncertainties. It is necessary to understand what insurance coverage is needed, compare them, and invest wisely.
Author: Mahek Medh
About the Author: Currently, I am in my second-year bachelor’s program and over the period of time I have realized that I enjoy learning about numbers and money, and I find topics of Finance to very interesting thus this is the domain and space where I wish to etch my long term career.