What is insurance?
Insurance is a thing that almost all of us need sometime and it is better to understand it before buying it. Insurance is an arrangement by which a company or the state guarantees to provide compensation for loss, damage, illness, or death in return of payment of a regular amount of money. In law, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
The company who sells the insurance is called insurer. A person who is buying the insurance policy is called insured or the policy holder. Premium is the amount that is charged for a certain amount of insurance coverage.
Types of insurance
There are many types of insurance policies provided by different insurance companies. The main insurance policies available in the market are:
- Life insurance – the insurance company pays in case of the death of the policy holder in this policy or at the time of the maturity. In new policy of LIC the holder is insured even after the maturity.
- Property insurance – your property is insured against the theft, fire, burglary or any natural calamity like flood, earthquake, etc. as per your policy.
- Auto insurance – any loss due to accident of the vehicle is covered by the policy. Sometimes the treatment and the medications are also covered depending upon the policy you have taken.
- Health insurance –it covers various types of insurance related to health like medical insurance, dental insurance, etc. The health insurance policy also involves injuries or accident at work place benefits.
- Credit insurance – in this policy the company covers or pays the loan in case of the death or job loss of the policy holder.
- Travel insurance – in travel insurance policy the holder gets medical coverage, belonging loss coverage as well as delay in travel coverage.
- Third party insurance – in this insurance policy the damages caused by you (first party) to others (third party) are covered.
Dos and don’ts of insurance
- Buy insurance for risk cover not for any other purpose.
- Read the policy document very carefully and do your homework before buying it.
- Chose a term policy instead of other as they are the cheapest and simplest.
- Keep in mind insurance is not an investment it is a risk cover policy.
- Don’t be confused by the false promises by agents or publicity.
- Avoid ULIP policies as they are market linked if your view is short term.
- Avoid saving linked policies as the premium is very high, duration is high.
- No need to buy insurance if you are alone.
- If you are wealthy, don’t buy the insurance as there is no financial crisis.
- No need to insure a child as he is not responsible for your finances.
- Don’t go into complicated insurance policies as they have their loop holes too.