Insurance would be defined as a guarantee against unavoidable and regrettable loss. This implies that you can be reimbursed if you suffer a financial loss as a result of an unusual incident that occurs throughout the normal course of your life.

Therefore, Insurance is a contract in which an individual is the insured and an insurance business (the insurer) provides financial protection for any losses the insured may incur under some defined conditions.

For instance, your car can sustain damage if you get into an accident while driving to work. In this situation, your insurance company will pay for the repairs. However, the insurance company will not pay for regular wear and tear, such as a broken headlamp or broken rear mirror.

Also Read: Importance of Financial Literacy?

Types of Insurance

  1. Health insurance
  2. Life insurance
  3. Disability insurance
  4. Auto insurance
  5. Homeowner’s / Renter’s insurance
  6. Travel Insurance

Health insurance

Helps in covering medical visits and occasional prescription drugs. Once you purchase health insurance, you and your insurer agree to each pay a portion of your medical costs, typically a set sum of money or percentage of the costs.

Life insurance

Gives a predetermined sum of money to a beneficiary of your choice should you pass away. Your family’s financial needs can be met by the proceeds from your life insurance policy. Different kinds of life insurance exist.
One of these is term life insurance, which only pays out if the insured individual passes away during the policy’s term (usually from one to 30 years). Another is whole life insurance, which provides benefits in the event that the policyholder passes away.

Disability insurance

Guards against financial hardship for people and their families when illness or accident stops them from working. Many employers offer some form of disability coverage to employees, or you can buy an individual disability insurance policy.

Homeowner’s / Renter’s insurance

Homeowner’s or renter’s insurance protects your house and the possessions inside in the case of a loss or theft and assists in covering the cost of replacement and repairs. Most lenders need homeowner’s insurance if you have a mortgage on your home. The landlord may insist that you carry renter’s insurance if you are renting.

Auto insurance

Auto insurance prevents you from having to cover any collision-related medical costs and vehicle repairs out of pocket. You must obtain auto insurance in the majority of states in order to drive a car.

The majority of financial experts advise everyone to have life, health, auto, and long-term disability insurance.

How Do Insurance Policies Operate?

You should be familiar with the following terms to comprehend how insurance works:

  1. Premium: To use the benefits of an insurance policy, you must pay a premium to the insurance provider.
  2. Sum Insured: For non-life insurance policies like home and health insurance, the term “sum insured” is used. It pertains to the annual limit on the charges for which you are compensated in the event of an unpleasant circumstance.
  3. Sum Assured: The sum assured is the sum that the life insurance company will pay to the nominee in the event that the covered event transpires (death of insured).

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What to think about when purchasing an Insurance Policy ?

It’s a good idea to research insurance before purchasing it. Research any insurance provider you’re considering working with to ensure that the business is well-run and offers excellent services. Also discover what factors are important  so that you can acquire the coverage you require at the most affordable price.

Wrapping Up

Insurance is a way to manage your risk. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad happens to you.

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