What is an Insurance Policy? – Definition and Types

You cannot see a risk-free life for yourself and your loved ones, but you can always choose an insurance policy for being prepared for unseen emergencies in life. It is surprising when you find out that insurance was different in history than in the modern age. Today you have a large number of companies providing different types of insurance to the people, but in history, before these companies exist people were worried about losing their valuables, their belongings, and their cargo, that is why it’s interesting to note that marine insurance was known as the first type of insurance and it has a unique name ‘Bottom Rebounds. In the 17 century, London became the center for choosing marine insurance. Later in the 18th century, different insurance policies were developed and changed as time passed.

What is an Insurance Policy?

It is an agreement between the policyholder and the insurer, in this agreement the policyholder agrees to pay a pre-decided amount (premium) to the insurer, and in return for that, the insurer agrees to pay the decided amount after the policy expires or under certain circumstances. It covered all possible loss, damage, and illness events. A typical insurance policy has your policy number, coverage period, amount of coverage, stuff that is covered, and what isn’t covered in the policy. Many insured (policyholders) purchase a policy without understanding what it covers and the condition that is met to apply for coverage when a loss occurs. That’s why it is important to understand the entire policy to avoid future problems.

Types of Insurance: 

Need of every person is different. Therefore, one must choose policy according to the need. There are mostly two types of insurance – General and Life insurance

1. General Insurance: 

General Insurance comprises different types of policies such as loss of liabilities such as bikes, cars, homes, and health. They cover the sum assured against the loss of some liabilities. General Insurance includes-

• Health Insurance: These are the type of insurance policies that cover all the medical expenses of the policyholder. The health insurance either pays or reimburses the amount paid in the treatment or injury of the policyholder. With the rising medical inflation, buying health insurance is a necessity.
• Motor Insurance: This type of insurance occurs when any vehicle owned by you met an accident. Motor insurance is of three categories: car insurance, bike insurance, and commercial vehicle insurance. It also takes care of the damage that occurred to a third party by your vehicle.
• Home Insurance: We all home dream. So protecting the home is also necessary. It is comprehensive protection against the house or any physical damage. It will cover any damage due to natural (earthquake, tornado) and human-made (fire, blast). This can be a residence or commercial space.
• Fire Insurance: This policy covers different types of compensation loss due to breaking out of the fire with the assured sum. These policies give a significant amount of money to the individual after incurring fire damage. It also covers damage caused due to third-party property
• Travel Insurance: It is a short-term policy compared to other policies. This type of Insurance protects you and your loved ones while traveling somewhere. This type of insurance covers the issues such as loss of baggage, flight cancellation, and personal emergencies.
• Mobile Insurance: Due to the rising price of mobile phones as well as the fear of stolen mobile phones. Mobile insurance is becoming popular day by day. You can claim money for your phone for the accidental damage also.
• Cyber Insurance: With the rise of internet-related frauds also increase. It gives protection against Cyber Extortion, Organized Crime, and Banking fraud. Any sort of loss under cyber insurance that occurred due to internet malpractice can be covered by this insurance.

2. Life Insurance: 

As the name suggests, it covers the unfortunate death of the policyholder, and it allows policyholders to maximize their savings. This policy covers a large amount, that can help your family after the death or after the policy period expires. Life Insurances includes-

• Term Life Insurance: It is the most affordable type of life insurance. If anything happens within the policy period, the family member will get an assured sum as per their predefined percentage. In case you survived the policy term, you won’t get any benefit.
• Whole Life Insurance: In this life, insurance policyholders get coverage for their entire life. After the age of 100, this policy gets matured the money will be given back to the insurer.
• Endowment Plans: Endowment plans offer savings schemes as well as life cover. Some portion of the premium goes for the sum assured and a small portion of it is invested in low revenue schemes. If the policy holder lives beyond maturity then he gets all the money back.
• Unit-Linked Insurance Plan (ULIP): These schemes offer life protection as well as capital appreciation by investing in different markets to earn returns. Market investment depends on the risk-taking capability of the policyholder. It offers partial withdrawal after the lock-in of 5 years.
• Child Plan: This plan is for making child’s life secure and can help in making their education, and marriage secure. The insurer will pay a certain sum to the children who attended certain age as per the policy agreement.
• Pension Plan: After you retire, you lose your regular income. This plan provides a fixed income source for the policyholder after a certain age limit. This plan also includes death benefits if the policyholder passes away the beneficiaries will be provided an assured sum.

General Insurance vs Life Insurance

Key Points	Life Insurance	General Insurance
Meaning	It covers the life risk of the people	It covers the goods/commodities of the policyholders.
Form	It s a form of investment	It is a contract of security
Contract Term	Long term Contract	Short Term Contract
Claim	The insurance Amount is paid on maturity or death	Insurance Amount paid only at the occurrence of a certain event
Beneficiary	The benefit goes to the nominated person	Benefits go to the Insured person
Financial Planning	Investment can be done under money-making objectives	Investment is done under the protection of valuables in case of uncertain accidents.