Insurance is the most beneficial risk management tool which provides protection from the financial risks that may arise due to an unforeseen event. Insurance can help an individual to cope up with the financial loss. However, there may be some uncertainties in life which cannot be mitigated, but an insurance policy can definitely help an individual to cope with the financial risk associated with it. Let’s understand what insurance is and what its features and benefits are.
What Is Insurance?
Insurance policy is a contract which can be considered a risk management tool that helps in ensuring financial protection of an individual in case of an unforeseen event. An insurance policy can help an individual ensure financial assistance against financial losses that may occur during an unforeseen event. Essentially, insurance is a contract between the policyholder and the insurance provider, wherein the policyholder makes regular premium payment to the insurance provider in exchange of the insurance coverage.
How Does Insurance Work?
An insurance policy is a legal contract between a person who is known as the policyholder and the insurance company. To avail the benefits of the insurance policy the policyholder has to make regular premium payment. An insurance policy has all the details about the conditions under which the insurance company will have to provide the insurance amount to the policyholder or the beneficiary of the policy in case an unforeseen event takes place. Anybody can choose to purchase an insurance policy from the insurance provider.
What Are The Types Of Insurance Available In India?
There are several types of insurance available in India. The four most common types of insurance bought in India are as mentioned below:
- Motor Insurance: Motor insurance is a type of insurance policy that provides coverage for your vehicle in case of an accident and also provides coverage for the damages that arise during an unforeseen event or otherwise. You can get coverage for your two wheeler and four wheeler. There are three types of insurance policies available in India, such as third party insurance policy, comprehensive insurance policy and stand alone
own-damage insurance policy. - Health Insurance: Health insurance is also known as medical insurance policy. This type of insurance policy provides financial coverage for medical expenses such as hospitalisation expenses, medical bills, pre and post hospitalisation expenses etc. Health insurance policy provides financial assistance to the individual in case of a medical emergency.
- Life Insurance: Life insurance policy is a type of insurance policy that provides financial support to the family of the policyholder in case of an unforeseen demise of the life assured during the policy tenure. Some life insurance also provide maturity benefit and investment opportunities. There are 7 types of life insurance policies in India such as Term Life, Whole Life, ULIPs, Endowment, Money Back, Child Protection and Retirement
plans. - Home Insurance: Home Insurance is also known as Property Insurance that provides coverage for the damage to your property caused during natural calamities. This type of insurance policy provides monetary aid in case of damages to the property caused during an unforeseen event.
Key Features and Benefits of Insurance
Insurance policy is a very beneficial risk management tool. Below mentioned are some key
features and benefits of Insurance policy:
- Coverage Against Uncertainties: One of the most important features and benefits of insurance policy is that they provide coverage against life’s uncertainties. Under an insurance policy, the insured person is compensated against losses that may occur during an unforeseen event, but it depends on the type of insurance policy the person has purchased. Purchasing a right type of insurance policy will help the insured to ensure protection from different uncertainties of life.
- Management of Cash Flow: An insurance policy to manage cash flow. During an unforeseen event, one might have to pay for the financial losses that occurred out of their pocket which affects the cash flow. In case they have an insurance policy the insurance company will provide compensation for the financial loss.
- Investment Opportunities: There are some insurance policies in the market that provide an investment opportunity to the policyholder allowing them to increase their wealth over time while availing the benefits of an insurance policy. Life insurance plans such as ULIPs are an example of insurance policy that provides investment opportunities to the policyholder.
- Tax Benefits: One major benefit of having an insurance policy is that the insured can get tax benefit for the premium paid towards life and health insurance policy. As per Section 80C and 80D of the Income Tax Act, 1961, the premium paid towards a life or health insurance policy qualifies for tax exemptions.
To Conclude
Insurance is an integral part of an individual’s financial planning, it can be used as a risk management tool to ensure financial protection for you and your family at all times. Everybody should consider insurance for their well being. There are types of insurance policies to choose from, you can purchase an insurance policy that fits your insurance requirements. We hope that this article has given you an insight into what insurance is, how it works and what are its benefits.