What is insurance | Definition, meaning, and types

Insurance is a agreement, represented by a policy, in which an person or entity receives financial protection or reimbursement against losses from an insurance company. The company pools customers risks to create payments more affordable for the insured. In other words we can say Insurance is a authorized agreement between two parties between the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on incident of the insured contingency.

You can get various  types of insurance policies that cover a range of risks, depending on what you are insuring.

Types of insurance:

#Life Insurance:

The insurance that covers the threat of the life of the insured is called Life insurance. In this, the nominee will obtain the policy amount, upon the death of the insurer. This is also known as an Assurance, as the event of  death of the insured is certain. The payment of the policy amount on the adulthood will be completed in one shot (lump sum) or periodical installments  , i.e. annuity.

1.Whole life guarantee:

Whole life guarantee, is one in which the policy amount becomes due for payment on the death of the insured.

2.Term Life guarantee:

The insurance policy in which the amount has to be paid on the maturity of the particular term, for instance, 10 years or 15 years, then it is called as term insurance policy.

3.Annuity:

 When the policy becomes  matured, the amount is paid in normal instalments, rather than in lump sum.

#General Insurance:

 Any insurance separately from life insurance comes under general insurance. In this type of insurance, the policyholder finds  the compensation only while the loss is caused to him, due to the reasons indicated in the policy. It is also called as non-life insurance. It divided into  three categories:

1.Fire Insurance:

 A contractual arrangement in which the insurer promises to cover the loss caused to the goods and property of the insured due to fire, up to an settled amount.

2.Marine Insurance:

When in an insurance policy, the insurer undertakes to pay off the ship or cargo owner against the risks linked with the marine adventure, it is known as marine insurance. It is further separated into cargo insurance, hull insurance and freight insurance.

3.Miscellaneous Insurance:

T here are other types of general insurance business which cover various types of risks. It includes burglary insurance, credit insurance.  vehicle  insurance, loss of profit insurance, fidelity insurance etc.

The life insurance and general insurance differ in the way that life insurance covers the life risk, whereas common insurance does not cover the risk of life. Secondly, the premium is paid at regular intervals in life insurance, but in general insurance, the premium pays  in lump sum for the year.

Facts:

Insurance helps pay your expenses or covers your losses while stuff go wrong.

You and the insurer company  agree on what is being insured and how much it is being insured for.

By paying for insurance, you are ‘transferring the risk’ of having to pay – if something goes wrong – to the insurer person.

You can only claim on your insurance if the thing that goes wrong is covered in your insurance policy otherwise you don’t get anything.

Waiting period:

Some insurance policies have a waiting stage. This means that you must wait for a definite period of time after you purchase the policy before you can make a claim. For example, you may have to wait 12 months before you can claim the fee of going to the dentist or having a baby on a private health insurance policy.

You may be able to modify the waiting period for some policies. You can choose a long waiting period by choosing a lower premium.

Value:

Some insurance policies contain a value (or cost) for what you are insuring. This is depend  on what the insurer will pay you if you have to claim on your insurance:

Agreed value – This means that the insurer will pay you a set dollar amount as stated in your policy.

Market value – This means that the insurer will pay the value of the thing depend  on its present age and condition at the time of loss

Replacement cost – This means that the insurer will cover the cost of replacing the things with a new one, regardless of its present age and condition.

Importance of insurance:

1.Insurance Grants Peace of Mind

2.Insurance Ensures Family and Business Stability

3. Insurance Protects the Small Guys

4. Insurance Keeps Commerce Moving