Insurance

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Definition:

Insurance is a legal contract between the two parties, insurance company (first party) and insured (second party). The contract is valid till the time the time premium is paid. An insurance policy promises to pay the insured compensation in case of occurence of death, loss, illness, or maturity as specified.

Description:

Insurance policy is your protection in case of any event that leads to a loss. Insurance is further divided into two sections, one is life insurance and the second is non-life insurance.

Types of life insurance policy.

1. Life insurance is the policy that pays you sum assured either on the death of the insured or on the maturity of the policy. Further the policy can be divided into these:

• Term Life Insurance
• Whole Life Insurance
• Endowment Plans
• Unit-Linked Insurance Plans
• Child Plans
• Pension Plans

2. Non-life or general insurance is the area of insurance that covers property/assets to include house, motor, building, all types of stocks. Under the policy, the insured is paid the claim to put the asset covered in the same state as it was before the event of loss. This insurance type is not to benefit but to indemnify the policyholder. Further the insurance can be divided into these:

• Motor Insurance
• Health Insurance
• Fire Insurance
• Home Insurance
• Travel Insurance

Example:

Abha purchased two insurance policies one was term life insurance and second was fire insurance for her factory building.

Abha’s Rs.1crore term plan was to keep her family financially protected after she died. The policy term was 25 years. If anything happened to Abha during this time, the term life insurance policy will compensate her family with Rs.1 crore.

The fire policy covered her factory building; the total asset cost was Rs.1 crore. If anything would happen to the factory building due to the named 12 perils as mentioned in the fire policy, the claim will be paid. Insurance policy is to protect our savings and compensate for losses.

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