What is Insurance? Benefits, Working, and the Components of Insurance

When you start working, you learn to take financial responsibility towards yourself and your loved ones. Financial planning includes several components like savings, investing, insurance, and expenditure planning. There are several types of insurance plans you can choose from in India. You can choose the type of insurance plan you want based on your needs. Read further to understand what is insurance and its types.

What is insurance?

An insurance policy is a legal agreement between an insurance company and a policyholder. A policyholder is required to pay regular premiums to the insurance company according to the terms and conditions of the policy. There are different types of insurance you can choose from based on your needs. Depending on the type of policy you opt for, your policy coverage will differ. Insurance acts as protection against the type of plan you choose. For example, if you buy car insurance, you get financial protection for your car. You are required to pay a premium for this and the coverage that is provided by the insurance company is mentioned in the policy terms. Irrespective of the type of insurance you buy, ensure that you are aware of the inclusions and exclusions of your policy.

Components of insurance

While understanding what is insurance, you must be aware of the components of an insurance policy. Here are the key components of an insurance plan:

1. Premium amount

When you buy insurance, you are required to pay a premium for the insurance coverage you need. It is usually a recurring form of fee that you can pay on a monthly, yearly, quarterly, or even half-yearly basis. You can choose the premium duration based on your financial convenience. You can also opt for a single premium where you have to pay the premium only once to get the insurance you need. Several factors are taken into consideration for determining the premiums of your insurance plan.

2. Insurance cover

Insurance cover is the maximum amount that your insurance company can provide coverage. The coverage that the company provides depends upon several factors like types of insurance, coverage amount, and terms and conditions of the policy.

3. Deductible

A deductible is the amount of coverage that the policyholder must pay out of their pocket at the time of claim. Deductibles are a part of policy terms. Here, the policyholder selects a percentage or an amount of the claim which shall be paid by them. The reason why policyholders opt for deductibles is to get insurance with a reduced amount of premium. The higher the deductible, the lower the risk that the insurance company has to underwrite.

Types of Insurance

There are two broad types of insurance in India: life insurance and general insurance. Read further about the type of insurance available:

Life insurance

Life insurance is a type of insurance related to an individual’s life. When you buy life insurance, you get life coverage in return for the premium you pay. Having life insurance ensures that in your absence, your family has a financial backup to rely on. There are several types of life insurance policies you can choose from based on your needs and your financial planning.

General insurance

Apart from life insurance, all the other types of insurance come under general insurance. General insurance provides coverage to the policyholder against different types of financial liabilities. Here are the common types of general insurance you can choose from:

1. Health insurance

Health insurance is a type of general insurance that offers you coverage against the financial expenses of medical treatment. In case of the treatment of any illness or injury, a health insurance plan either pays or reimburses you for it. The rising cost of health care in the country makes having a health insurance plan essential.

2. Fire insurance

A fire insurance policy offers insurance coverage to the policyholder in case of any financial loss incurred due to a fire breakout. Having fire insurance allows the policyholder to make good for the loss suffered due to fire.

3. Motor insurance

Motor insurance is a type of insurance that offers financial assistance in case of your bike or car requires repair or is involved in an accident. Car insurance offers coverage to four-wheeler vehicles. While bike insurance offers coverage to two-wheelers. There are also commercial vehicle insurance plans that offer protection to vehicles that are used for commercial purposes.

4. Home Insurance

A home insurance plan offers comprehensive coverage to the policyholder’s house. It protects the contents and the structure of the house. It offers coverage against any physical damage or destruction. This includes any natural as well as manmade calamities that may occur. There are several types of home insurance plans you can choose from based on your needs.

5. Travel Insurance

When you buy travel insurance, you get financial coverage for yourself during travel. It ensures that you have a smooth trip and offers protection against any scenarios that may occur during your travel. For example, if your flight is canceled, having travel insurance ensures that you are financially compensated for the same. Travel insurance allows you to have a peaceful journey be it domestic or international. Ensure that you read the inclusions and exclusions of your travel policy to be well-informed about your plan. Having insurance allows you to protect the things and the aspects of your life that matter to you and your loved ones. Consider comparing several plans online before narrowing your choices. Also, ensure that you read the fine print while choosing the insurance plan of your choice.   Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.