As nothing in life is permanent, there is risk of death and destruction on life and property all the time. These risks may lead to financial losses. To overcome such loss, insurance is taken as a security.
The following points are covered in this article
What is Insurance
Parties to an Insurance contract
How does Insurance work?
Types of Insurance
Benefits of Insurance
1. What is Insurance?
Insurance is a legal contract between two parties i.e., the Insurance Company (Insurer) and an individual (insured). If the property or life insured by the policyholder has faced any loss due to the happening of a contingent event, the insurer provides compensation for such loss
2. Parties to an Insurance policy
● Insurer- One who provides reimbursement of the Insurance Policy. Insurance Company is the insurer
● Insured- The person who buys an insurance policy and his life or property is covered under the insurance policy
3. How does Insurance work?
Insurance is a legal agreement between insurer and insured. Such an agreement is called an Insurance policy. Insurance policy is a document that specifies the details about all the parties to the agreement and the conditions on which reimbursement will be made. Certain amounts of Premium is to be paid on an Insurance policy.
The contingency on which insurance is made may take place or not. Whenever such an event takes place, it is upto the Insurance Company to decide how much amount is to be reimbursed.
4. Types of Insurance
All the insurances are not covered under the same category. There are different kinds of policies based on different contingencies.
a. Life Insurance
Life Insurance is the policy taken on one's life. Human life is contingent as it is. This insurance is taken to financially support the dependent of an individual. If a person has taken life insurance policy, he can avail tax deduction under section 80C of Income Tax Act.
b. Health Insurance
This insurance covers medical expenses of the insured. Life insurance policy is taken on the life of a person. It can be claimed on death of the insured but health insurance is only on treatment for diseases and other health complications. A person can avail the deduction of the premium paid under section 80D of the Income tax Act.
c. Fire Insurance
Insurance policy taken specifically for damages or loss caused by accidental fire, explosions etc. This is usually taken by firms or manufacturing units where risk of fire hazard is high. There are lot of conditions on fire insurance such as the fire should not be intentional and efforts should be made to save the property from much loss
d. Marine Insurance
Marine Insurance covers the loss or damage caused on ships, boats, and cargo while transporting goods through waterways. There are different types of marine insurance based on where the transportation is taking place. Waterways can be one of the riskiest modes of transportation. So, people prefer to take marine insurance
e. Home Insurance
House is a very important property for every individual. Home insurance or house owner's insurance is taken on damage caused on private residence. It may include not only the house itself but the possessions inside the house.
f. Liability Insurance
Liability Insurance covers damages caused by the insured to the third party. When the insured is held liable for someone else's injury or damage liability insurance can be claimed. Companies usually buy liability insurance policy to cover the risk of injury or damage on customer’s property
5. Benefits of Insurance policy
● Insurance policy provides risk coverage to the insured person's life or property
● Immediate cash flow during uncertainty. When damages occur and insured is in need of cash, insurance policy provides financial support
● Tax benefit on life insurance policy. Income tax Act provides tax deduction on life insurance policy reducing the tax burden
Frequently Asked Questions
1. Is Insurance important?
Insurance provides risk coverage to a person's life and property. To overcome contingent event, insurance is helpful
2. Who are the parties to Insurance policy?
Insurer who gives risk coverage, Insured who has bought the insurance policy, claimant on whom policy is taken. In many cases Insured and Claimant are the same person
3. Does an insurance policy cover full amount insured?
Insurance does not cover all types of losses. Only part of the damage is reimbursed based on the level of damage caused