Are you considering taking out an insurance policy? Here’s what you need to know
The insurance provides coverage to an individual for the financial losses they suffer due to an unforeseen adverse event. You pay a certain amount as a premium at fixed intervals and the insurance company pays you a fixed amount in the event of an accident or theft.
What are the components of insurance?
An insurance policy has three main elements: the insurance premium, the sum insured and the deductibles.
The premium is the amount you would have to pay to an insurance company at regular intervals in order to keep the insurance contract in force. Payment can be made monthly, quarterly or annually. The amount of the premium varies depending on what the insurance covers and the eligibility of the policyholder. Based on the premium paid, the company insures a certain amount as insurance coverage in case of an adverse incident.
The policy limit (or sum insured) is the maximum amount you will receive as coverage from the insurance company. For example, if your health insurance policy limit is Rs 3 lakh and your hospital bill is higher, the insurance company will pay you Rs 3 lakh as per the terms of the policy and you have to pay the expenses beyond. The policy limit is established based on the insurance premium, the type of loss incurred and other similar factors.
A deductible is the amount or percentage that you will have to pay in the event of an unfortunate event, before the insurance company pays out the coverage. The deductible helps the insurer avoid small, insignificant claims that people file under their insurance policies. Choosing a lower deductible means you will pay less when you file a claim, but these policies usually have higher premiums because the insurer will have to pay for the cover.
What are the types of insurance?
There are two main types of insurance – life insurance and general insurance – and each has several subtypes. To understand better, let’s dive into the details.
What is life insurance?
Life insurance provides a predefined sum of money to the family of the policyholder upon their death or after a specified period (the time when the policy matures). The person who holds the insurance will designate a person who will receive the money from the insurance company. The amount paid by the insurer would help the family through financial difficulties when they lost the breadwinner.
Types of life insurance:
Here, the candidate receives a fixed amount based on the premium paid, upon the death of the insured person during the term of the contract. But if the person survives the term of the insurance policy, they may not receive any maturity benefit. Term insurance is inexpensive compared to other life insurance and premium rates are more affordable. Term insurance also covers critical illnesses when the insurance company pays a fixed amount for life-threatening conditions.
An endowment contract serves as both a life insurance and a savings instrument. If the policyholder dies during the term of the insurance, the agent will receive the predefined sum of money. But if the policyholder survives the period of insurance, he will receive the premium paid as well as some return according to the terms of the policy.
This insurance policy plays the dual role of investment and life insurance coverage. The policyholder will receive a certain amount at fixed intervals under the term of the policy and the agent will also receive maturity benefits in the event of the death of the policyholder. When the policy matures, the owner receives maturity benefits and a premium under the insurance contract.
What is general insurance?
General insurance covers a wide range of non-life insurance, including health, vehicle, home, travel, etc. Here, an insurance company will cover the expenses of the insured in the event of an unforeseen incident. The amount paid by the company will be fixed according to the premium chosen by the insured.
General insurance covers financial expenses such as:
Health insurance is essential to avoid out-of-pocket expenses and helps pay hospital bills and medical emergency expenses. The amount payable by an insurance company is based on the premium amount paid by the policyholder and also depends on the list of illnesses covered by a certain health insurance scheme. The older a person gets, the higher the premium. Health insurance policies often cover accidents, but not self-inflicted damage such as attempted suicide.
Motor insurance covers vehicles against accidents, theft, vandalism, etc. The policyholder receives money from the insurance company to cover all damage to the vehicle. Some car insurance offers third party coverage in the event of an accident where the insurer covers the third party in the event of an accident to the insured’s vehicle.
As its name suggests, this insurance covers damage caused to the home and property of the insured by several types of accidents. The policyholder can claim the insurance for damage caused by causes such as natural disasters, such as floods, earthquakes, lightning, etc., and man-made incidents such as fires, destruction, theft, etc.
Travel insurance is important for those going abroad as it covers the policyholder in the event of an emergency during the trip, such as hospitalization, lost luggage, flight cancellation or delay, etc. Depending on the type of trip, you can choose between a short or a long duration. travel insurance. Frequent travelers choose long-term travel insurance because it covers them for a longer period.
What are the benefits of insurance?
Insurance reduces the financial burden of an insured and their family in the event of an unfortunate event. Coverage protects a person with financial assistance while navigating difficult life situations.
Many insurance policies promise a fixed amount of return at the maturity of the insurance, which constitutes long-term savings for the insured.
Protect loved ones
Insurance can help a family overcome its financial needs upon the death of the breadwinner. Coverage could help the family pay essential bills and avoid financial dependency.