What is Insurance, types of insurance policies, how it works, importance and its benefits?

 

This article clearly discusses the meaning of insurance, types of insurance policies, how it works, importance and its benefits. Everyone has a common doubt that why we need to take insurance? The property and life of a person are surrounded by the risks f destruction, disability and death. If a person takes an insurance policy, he/she can mitigate the risk by claiming a certain percentage of policy amount or full amount. It is a judicious procedure of transferring the risks to an insurance company.

Definition of Insurance?

                        It is legal contract entered between the individual (Insured person) and the insurance company (insurer). In this agreement, the insurer promises the insured person to pay whole or certain percentage of amount on the occurrence of insured contingency which means event that causes a loss. It can destruction/damage of the assets or death of the policy taker. It is termed as contingency because there is an indecision related with occurrence of the event. The policyholder needs to pay a premium in return for the promise give by the insurance company.

How it Works?

                        The policyholder(insured) and insurance company (insurer) get into a legal agreement for insurance which is known insurance policy. It contains facts regarding the situations & conditions under which the insurer will give out he insured amount to either nominees or policyholder.

                        It mainly taken to safeguard our family and yourself from an uncertain event. The premium amount paid for a big insurance policy is much lesser. Insurer takes the risk of giving a high cover for small amount because very little percentage of policyholders end up claiming the insured amount.

                        Any person or business organization can search for insurance from an insurer but the choice of giving it completely depend on decision of them. They will make decision only after evaluating the claim application. They usually refuse to give insurance to high-risk candidates.

Type of Insurance Policies

                        The main classification of insurance policies is pointed out below:

Home Insurance

                        It is usually taken to cover damages or losses occurred to your home because of accidents such as natural calamities or perils and fire. It also covers other occurrences such as earth quakes, lighting etc.

Education Insurance

                        This policy is similar to that of life insurance policy which is particularly formulated as a saving instrument. It can be employed to pay the higher education expenses of policyholder`s child. In this policy, the legal guardian/parent is the policy owner and child are the recipient of funds.

Car Insurance

                        Every car owner needs to takes car insurance policy in the today`s world because it gives protection against any unfortunate occurrence such as accidents. Some car insurance policies also pay for damages occurred due to natural disasters such as earthquakes or floods. This policy also covers third-party liability. (The amount you have to paid for damages to other vehicle owners.

Health Insurance

                        It is generally used to cover medicinal costs for expensive treatments. The various kinds of policies provide cover against a wide range of ailments & diseases. An individual can purchase specific diseases policy as well as a general health insurance policy. The premium amount given against this policy generally consists of medication, hospitalization and treatment costs.

Life Insurance

                        This policy is taken on your life so that in case of your untimely demise your dependents will receive the full premium amount. It is especially significant if your family completely dependent on your income or you are the only employed person of your family. According to this policy, the family of insured person is compensated financially in case of expiration of policyholder during the policy tenure.

 TAX BENEFITS ON INSURANCE

                        Apart from the security and safety benefits, the policyholder can avail income tax benefits.

The Policyholder can claim a tax saving deduction under Section 80C if the premium amount of life insurance policy is over Rs 1.5 lakh.

The Policyholder can claim a tax saving deduction under Section 80D if the premium amount of Medical insurance policy is over Rs 25000 for your parents and Rs 25000 for yourself and your family.