What is Insurance?
Insurance is a method that spreads the loss likely to be caused by an unknown occurrence among a number of people who are exposed to it and plan to protect themselves against it. It is a contract or agreement in which one party promises to pay an agreed amount of money to another party in exchange for compensation to make a loss, damage, or harm to anything of value in which the insured has a financial interest as a result of some unpredictable event.
Insurance is a legal contract (insurance policy) agreed upon between the two parties, namely the insurance firm (also known as the insurer) and the individual or group (known as insured). Both of these parties enter into a contract in which the insured pays the insurer a predetermined sum of money (known as a premium) with the promise that the company will compensate the insured in the occurrence of a financial loss (risk) due to the causes for which the insurer has agreed to provide coverage. Businesses require customised insurance plans that protect them against distinct sorts of hazards.
Keeping this in mind, people who face similar risks gather together and contribute small amounts to a shared fund, which helps to spread the loss caused to an individual by a specific risk over a group of people who are exposed to it.
The agreement/contract is documented in writing and is referred to as ‘policy.’ The individual whose risk is insured is referred to as the ‘insured,‘ and the company that covers the risk of loss is referred to as the insurer/assurance underwriter.
Types of Insurance
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Life Insurance: A life insurance policy is a legal agreement between an insurer and a policyholder. In exchange for the premiums paid by the policyholder throughout their lifetime, a life insurance policy promises that the insurer will pay an amount of money to specified beneficiaries when the insured dies. Life insurance is a policy or cover that helps the insured person to give some financial independence or assurance for his or her family members after death. Assume you are the primary earner for your family, supporting your spouse and children. In such a case your family can be financially ruined after his or her death. Life insurance plans prevent this from happening by giving financial help to your family in the case of your death.
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Health Insurance: Health Insurance is a contract between an insurer and an individual or a group in which the insurer agrees to provide health insurance at an agreed-upon price, which is premium. Premium can be paid in instalments or in lump-sum depending upon the policy taken. Health insurance claims can be made either immediately in cash or through payment after treatment. In India, health insurance is accessible in the form of Mediclaim coverage, which is offered to an individual or to any group, association or corporate body. People who have chronic health conditions or require frequent medical treatment should opt for health insurance packages with lower deductibles. Though the yearly premium is more than for comparable insurance with a larger deductible, the tradeoff of less expensive access to medical care throughout the year may be worth it.
- Fire Insurance: A contract whereby the insurer, in consideration of the premium paid, undertakes to compensate the insured for any loss that may result due to the occurrence of fire is known as Fire Insurance. The fire insurance policy is usually for one year and has to be renewed from time to time. The premium can be either paid in lump sums or instalments. The document which contains the terms and conditions of the contract is known as Fire Insurance Policy. The claim for loss by fire must fulfil two conditions:
- There must be actual loss.
- Fire must be accidental and non-intentional. This means that the property insured must be damaged or burnt by fire. It will not cover the damages under the word ‘fire’ if the property is damaged by heat or smoke without ignition and such loss will not be recoverable from the insurer.
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Marine Insurance: Marine insurance is a contract in which the insurer agrees to compensate the insured against maritime losses in the way and to the extent agreed upon. Maritime insurance protects against loss caused by marine hazards or perils of the sea. Marine risks include ship collisions with rocks, ship attacks by opponents, fire and capture by pirates, and the captains’ and crew’s activities. These risks result in ship and cargo damage, destruction, or disappearance, as well as non-payment of freight. So, marine insurance protects the ship’s hull, cargo, and freight.
In a marine insurance contract, the insurer (also known as the underwriter) agrees to provide payment to the insured (often the owner of a ship or cargo) in the case of a complete or partial loss at sea. The insurer pays a certain amount in consideration for the guarantee and protection he receives. Protection against loss caused by marine or marine perils is provided by marine insurance.