A Beginner’s Guide to Insurance

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Having the right type of insurance is the essence of sound financial planning. Some of us may have some form of insurance but very few understand what it is and why you should have it. For many Indians insurance is an investment or a good way to save taxes. Ask the average person about their investment and they will proudly tell you about the insurance product as part of their main investment. About 5% of Indians are insured and the number of insured is very low. There are very few insurance insurers like that. Probably no other financial product has ever seen such a huge negative sale in the hands of agents who are passionate about selling insurance-linked products and investments that earn them *** commissions.

What Is Insurance?

Insurance is a means of propagating a significant financial or personal risk to a large group of people or business entities in the event of a aforementioned adverse event. The cost of obtaining insurance is a monthly or annual compensation paid by the insurance company. In the purest form of insurance if the aforementioned event does not occur until the prescribed period the amount paid as compensation can be refunded. Insurance is a good way to spread the risk among many insured people and lighten their financial burden in the event of a shock.

Insurance and Insurance

If you want to be protected from financial risk and enter into an agreement with an insurance provider it becomes insurance and the insurance company becomes your insurance.

Sum confirmed

In Life Insurance this is the amount that the insurer promises to pay if the insurer dies before the specified time. This does not include bonuses included in the case of non-temporary insurance. For non-life insurance this guaranteed amount can be called Insurance Cover.

Premium

To protect the financial risks provided by the insurance provider, the insurer must pay compensation. This is known as premium. They can be paid annually, quarterly, monthly or as stipulated in the agreement. The total amount of premiums paid is several times lower than the insurance cover or it would not make much sense to seek insurance at all. Factors that determine the premium cover, the number of years the insurance is required, the age of the insurer (individual, car, etc.), to name a few.

Nominee

Beneficiary defined by the insurer to obtain a guaranteed amount and other benefits, if any. In the case of life insurance it should be for someone other than the insured.

Policy Term

The number of years you want to be protected is the policy period. The term is determined by the insurer at the time of purchase of the insurance policy.

The passenger

Certain insurance policies may offer other features such as extensions other than actual cover. This can be achieved by paying extra premiums. If those items were purchased separately they would be very expensive. For example you can add to a passenger personal accident with your life insurance.

Commitment Amount and Value Payment

If you want to get out of the policy before its expiration you can stop it and get your money back. The amount the insurance will pay you for this is called the commitment amount. Policy no longer exists. Instead if you stop paying premiums in the middle of the way but don’t withdraw the money that fee is called paid. At the end of the term insurance is paid in proportion to the amount paid.

Now that you know the terms this is how insurance works in clear terms. The insurance company puts the premiums into a large group of people who want to prevent some kind of loss. With the help of its researchers the company comes up with a statistical analysis of the probability of actual losses occurring in a certain number of people and corrects premiums considering other factors as mentioned earlier. It applies to the fact that not all insurers will lose at the same time and many may not experience any loss at all during the contract.

Types of Insurance

In any case, any financial risk can be avoided. To protect loved ones from financial loss due to premature death can be life insurance. To protect yourself and your family from unforeseen medical expenses you can choose Mediclaim policy. To protect your car from being robbed or injured in an accident you can have car insurance. To protect your home from theft, fire damage, floods and other accidents you can choose home insurance.

The most popular insurance forms in India are life insurance, health insurance and car insurance. Apart from these there are other forms that will be discussed briefly in the following sections. The insurance sector is regulated and overseen by the IRDA (Insurance Regulatory Authority).

Health Insurance

This type of insurance provides financial protection in the event of premature death of the insurer. There are 24 life insurance companies playing in this arena where Indian Life Insurance Corporation of India is a public sector company. There are several types of life insurance policies that are the easiest way is term term plan. Other complex goals are the endowment program, a lifetime plan, a rebate scheme, ULIPs and pensions.

General Insurance

All other insurance other than Life Insurance is under General Insurance. There are 24 general insurance companies in India of which 4 are National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd located in the public domain.

The largest non-health insurance pie in terms of written premiums is shared with car insurance followed by engineering insurance and health insurance. Other types of insurance offered by companies in India are home insurance, travel insurance, personal accident insurance and business insurance.

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