Every individual’s life is prone to disability and death at any point in time in their lives. Similarly, an individual’s property is also prone to destruction. Through insurance, one can lay the burden of such risks to an insurance company.

What is insurance?

Insurance is defined as a legal agreement between two parties, which consists of the individual, the insured, and the insurance company, the insurer. In this agreement, the insurance company gives an assurance to the insured that they will make up for the losses of the insured in the case the insured contingency occurs.

The contingency here is nothing but an event that causes any kind of loss. It could be the demise of the insured or the damage or destruction to the insured property. It is called a contingency because there is no certainty that the event would occur in the near future or occur at all. In return for the promise given by the insurer, the insured individual pays a premium.

How does insurance work?

The insured individual and the insurance company get a legal contract for the insurance signed, which is known as the insurance policy. This insurance policy contains details about the insurance like the conditions and the circumstances under which the insurance company will pay the insured amount to the insurance policyholder or the nominees of the insurance policy.

Financial losses in life are unpredictable, and it is always wise to be ready for them. Insurance is a great way to cover yourself and your family when these losses occur. Usually, the premium for a big insurance cover is very less when it comes to the amount of money paid. Insurance companies go out and provide a large insurance cover for small premium amounts because they are aware that most people usually don’t claim this insurance. This is how you get a large amount of insurance for a very less price.

Any individual or company can apply for insurance at an insurance company. However, the decision to provide insurance to different people and companies is the insurance company’s to make. The insurance will first evaluate the claim application before they make a decision. Insurance companies usually reject claims of high-risk applicants and don’t provide them insurance. These are the life insurance policy in India.

Life insurance

Life insurance is an arrangement between an individual and an insurance company or the Government promising to compensate for the loss of life of an individual in return for the payment of a premium that is specified beforehand. In life insurance, the beneficiary whose name is mentioned in the insurance policy will receive the sum insured in case of demise of the policyholder, who will be paying the premium.

Benefits of life insurance

  • Life insurance offers risk coverage to the family insured in the form of monetary compensation.
  • Life insurance policies also cover critical illness treatment and hospitalization expenses.
  • Life insurance policies also offer tax benefits. According to Section 80C of the Income Tax Act (1961), tax deductions can be claimed for insurance policyholders.
  • Life insurance policies also provide the insured with loan facilities. Insurance policyholders can borrow a certain amount as a loan. However, this option is only applicable to certain policies.
  • There are a variety of plans to choose from for insurance, depending on the needs of the insured. With more premium, there are a number of benefits.
  • Insurance policies come with guaranteed income. The sum assured is guaranteed, and in case of the happening of the event, the sum will be given to the beneficiary.
  • Insurance policies help in wealth creation. They promote savings and invest your money in profitable ventures.

Health insurance

In health insurance, an agreement is signed between an individual and the insurance company where the insurance company agrees to compensate for the medical expenses of the insured if she/he falls ill, meets with an accident or any event that leads to the hospitalization of the individual. In most cases, these insurance companies have a tie-up with the hospitals for them to provide free, cashless treatment to the insured. If this is not the case, then the insurance company works by reimbursing the money spent on the medical bills by the insured. Health insurance is also promoted by the government since it allows an individual to claim for deductions from the income tax.

Importance of Health Insurance

In today’s economy, one need not point out how expensive medical treatment could be, especially in the private sector. Hospitalization can easily devour you of all your finances. This is why it is important for an individual to buy health insurance, for themselves and their family, and prepare for emergencies. You can do so by simply paying a very small annual premium which you are of great help to you during your medical emergencies.

Be careful while selecting your life insurance policy and pick one that covers most of your needs. For instance, a decent life insurance policy would cover expenses towards medical treatment, the doctor consultation fees, expenses towards medical tests, charges towards the ambulance, and also post-hospitalization recovery charges to some extent. If you find a policy with all these, you’re pretty good to go.

Benefits of having a health insurance policy

  • As mentioned above, if you have a health insurance policy, you would receive cashless treatment since the companies usually have a tie-up with many hospitals.
  • Insurance policies also cover transportation charges, i.e., charges towards an ambulance.
  • Depending on the insurance plan that you purchase, insurance companies cover the pre and post hospitalization charges up to a period of 60 days.
  • Insurance policies take care of the room expenses, based on the premium that the insurer pays.
  • There is a No Claim Bonus (NCB) which will be given to the insured in case they do not issue a claim in the previous year.
  • Most insurance policies provide options for regular health checkups. Some insurance policies also offer free health checkups based on your previous no claim bonuses.
  • As mentioned earlier, the premium that is paid for health insurance is tax-deductible under Section 80C of the Income Tax Act.

Car insurance

Every car owner should have insurance. With the amount of traffic increasing every day in India, accidents are a frequent occurrence, and damages to the vehicle are not fixable at a low cost. This is why it is important for car owners to have car insurance. Car insurance protects your vehicle in case of any accidents. Some of these insurance policies also compensate for the damages caused to a vehicle regarding natural disasters such as floods and earthquakes. In case you have to end up paying damage charges to another vehicle, insurance policies also cover such third-party liabilities.

Home insurance

A home is the safest place one could think of. But again, accidents and disasters can occur anytime, and no one can tell how it will affect your place of residence. This is why it’s necessary to get a home insurance policy. It will cover your home against accidents. It will also cover your home if it has been affected by natural calamities. Other accidents covered by home insurance policies include earthquake, lightning, fire, etc.

Education insurance

Education today is highly expensive, and it’s quite impossible to afford your child’s higher education. College fee in today’s economy is simply a nightmare. Education insurance would come in handy here. An education insurance policy will give your child a lump sum amount when he/she reaches the age for higher education, which is 18 years or higher, and gets admission into a college. This fund will pay for your child’s higher education. Under an education insurance policy, the child whom the fund is being insured to is the recipient of the fund, and the parent or the legal guardian who pays the premium will be the owner of the policy. You can use an education planning calculator to count how much money you have to ensure for your child’s education.