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What is Insurance?
Sagar Chikane • 21 February 2023

Insurance is a legal contract between two parties i.e. the insured

and the insurance company; it is also known as insurance coverage
or insurance policy which can be purchased from an insurance
company in exchange of premium.
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 The insurance company provides financial protection against the losses incurred
by the policyholder. Under an insurance policy, the insurer provides coverage to
the policyholder in the event of regular premiums payment. Coverage is provided
to the insured in case of damages, death or disability as per the policy terms and
conditions.

Insurance: Definition and Meaning

Insurance can be defined as a contract between the insurance company and the
insured, offering financial protection against unpredictable events. Insured is the
policyholder whereas, the insurer is the insurance providing company, also
known as underwriter or insurance carrier. Financial protection is provided to the
insured in cashless form or reimbursement.

In exchange for the coverage provided by the insurance company, the insurer has
to pay a premium which is decided based on various factors such as age, income,
requirement, etc. The coverage is offered to the insured based on policy terms
and conditions.

Insurance: Coverage Features

Given below are a few features of insurance:
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 It is a risk management tool that acts as a hedge against an uncertain loss
Under insurance, the policyholders pool in their money and pay the
premiums. Hence, when one or a few incur any loss, the claimed money is
offered from the accumulated amount

Insurance coverage is provided for medical expenses, property loss, vehicle,

mobile phones, etc.

The main components of an insurance policy are the premium, deductible

and the policy limit. Hence, when buying the policy, it is imperative that the
policyholder checks on these aspects

Insurance: Coverage Benefits

An insurance policy comes with multiple benefits and given below are a few of
them. The policy provides financial reimbursement in case of financial crisis, thus
providing peace of mind. Given below are few of the benefits of insurance.

Provides Protection:

In the times of financial crisis, insurance provides monetary compensation,

thus saving the insured from financial woes and thereby ensuring peace of
mind.

Risk Sharing:

Under insurance, money is pooled in from various policyholders. The

company takes collective risks and premiums, covering a large group of risk
exposed people. The payout in case of any uncertainty is made from the
fund. Thus, all the policyholders share the risk of the one who actually
suffered from the loss.

Provides Certainty:

With insurance, policyholders get a sense of assurance since the risk is

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 handled by the insurer. Insurance protects the policyholder in case of
accident, hazards or vulnerabilities.

Savings:

Insurance policies, for instance, life insurance helps the policyholder

inculcate the habit of saving money. This, thus, encourages people to save
and invest.

Types of Insurance
Insurance policies are classified in the below types i.e. general and life insurance.
General insurance is further categorized in categories such as health insurance,
motor insurance, home insurance, etc.

1). Life Insurance

This type of insurance helps you protect your and your family’s financial
future by providing you coverage for a specific period of time. Lump sum
amount is given to the nominee in the event of death of the insured. This,
thus, helps the grieving family overcome financial struggles that may
otherwise occur in the absence of the policyholder.

2). Few of the types of life insurance are

term insurance, ULIP, endowment plan, retirement plan, money back plan,
etc.

3). Endowment Policy

An endowment policy pays out to the policyholder under both

circumstances i.e. even on death and survival. One part of the premium paid
is allocated towards life cover while another part is invested.

4). Money Back Policy

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 In simple terms, a money back plan offers periodic payments to the investor.
The periodic payments made are generally a fixed percentage of the sum
assured.

5). Whole Life Insurance Policy

As the name suggests, this type of policy provides coverage to the

policyholder as long as he survives. The policy is designed to cover
individuals up to the age of 100 or whole life even.

6). Unit Linked Insurance Plan

Under this insurance, a part of the premium you pay is invested in the
market, while the other part is invested towards providing you life cover.
Investing in ULIP gives you a chance to choose the funds you want to invest
in.

General Insurance

1). Health Insurance

Health insurance protects the health of the family including spouse,

parents, siblings, children. Insurance companies have tie ups with hospitals
where one can avail cashless hospitalization.

2). Motor Insurance

Buying third party insurance is mandatory as per the law as it offers

coverage against damages caused to third party or property. One can also
choose to buy a comprehensive policy as it covers damages caused to third
party as well as own damages.

3). Travel insurance

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 Travel insurance covers an uncertain event that takes place when you are
traveling. Events such as flight cancellation, baggage loss, flight delay, etc.
are covered.

4). Home Insurance

This type of insurance provides coverage to property, covering financial loss

and providing monetary aid. Losses caused due to flood, theft, mishaps are
covered.

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