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Last updated date: 16th May 2024
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Introduction of Insurance and Brief Definition

Insurance is a very significant part of our lives. It is what guards us, secures us, and even our loved ones from any sort of mishap. There are many sorts of insurances available out there. And you can get many for yourself, as per your need, as well. 

Why do we Need Insurance?

Life is uncertain; there are no guarantees or predictions about what will happen in one's life. Similarly, businesses also don't have any guarantee as they face many unexpected losses or damages in the long run. Assets like cars, bikes, etc. also don't have any certainty in their lifetime, they can get stolen or damaged in the long run. One can fight all these risks with an insurance cover.


Insurance Definition

Insurance is generally defined as a contract which is also called a policy. An insurance policy is a contract in which an individual or an organization gets financial protection and compensation for any damages by the insurer of the insurance company. In simpler words, one can answer what is an insurance policy as a form of protection from any unexpected loss or damage. From this paragraph, one can get a clear overview of insurance meaning. 


Principles of Insurance

To ensure the proper functioning of the insurance contract, the insurer and the insured have to follow the following principles.

  • Utmost Good Faith

  • Direct Cause

  • Insurable Interest

  • Indemnity

  • Subrogation

  • Contribution 

  • Minimizing the loss   

Importance of Insurance

Insurance plays a major role in the insured’s life. Here are a few pointers that will show how:

  • The insured’s family is protected with the help of insurance at the time something unexpected happens. Their family doesn't have to worry about the monetary aspects of the finances in this case.

  • We all know that unexpected events can occur at any time and are a part of life. In case of any injury, illness, or death, finances are the last thing that they need to worry about. This way, their emotional stress is also reduced to an extent.

  • Insurance is a great financial security to an individual's family. An insurance policy gives the family the coverage needed as well as the courage to move on.

  • Insurance is peace of mind for the insured in case of theft or medical emergency. This way they would not have to go and arrange money or go into a panic mode. 

  • The funds which are provided by the insurance company are well enough for managing the school fees of the insured children. It also takes care of their standard of living.

Functions of Insurance

The functions of insurance can be listed as follows:

  • They provide certainty to the insured.

  • They ensure the protection of the family.

  • They are risk-sharing policies.

  • They prevent the damages that can come from loss.

  • It provides capital.

  • It’s known for improving efficiency.

  • It helps in boosting the economy.


Types of Insurance

After having gone through the following points, one can get an answer to the question of how many types of insurance are there?


Health Insurance

Health insurance is a contract that is formed between a health insurer and a policyholder. This policyholder is also known as the insured person. In this contract, the health insurer agrees to pay the full medical cost of the insured or just a portion of it.


Car Insurance

Vehicle insurance covers cars, motorcycles, trucks and all the other vehicles running on the road. This insurance is meant for giving protection against any physical damage or bodily injury that the vehicle suffers from recklessness or an accident. All the cost incurred to repair the vehicle is met by the insurance company. 


Life Insurance

Life insurance is a contract in which the beneficiary is paid a fixed amount of money by the insurer after the death of the insured. The beneficiary uses this money to clear out the debts of the insured and also to meet his/her financial expenses after the death of the insured. The beneficiary is usually the spouse of the deceased. The beneficiary name is mentioned in the contract.


Homeowners Insurance

Homeowners' insurance protects one's house from the uncertainty of any damages. The insurance covers the house the insured person resides in and other associated structures connected to the house such as the balcony, garage and porch. The insurer will provide the amount incurred to repair any damage in the house or its associated structures.


Umbrella Insurance

Umbrella insurance is also known as liability insurance. It covers the cost that is incurred in excess of other insurance policies. It gives a person extra coverage on another type of insurance policy that he/she is in.


Renters Insurance

Renters insurance is meant for tenants who use it to protect their personal property from any damage or theft. The insurance covers all the assets owned by the tenants. This is done because the landlord doesn’t take any responsibility for the assets of the tenant. Nowadays, landlords are not allowing tenants who don't have renters insurance.


Travel Insurance

Travel insurance is good for those people who travel a lot. It covers trip cancellations, lost or misplaced luggage, travel accidents and even medical expenses.


Pet Insurance

Pet insurance is meant for meeting all the expenses that are incurred concerning the sickness and accidents of the pet. All the medical expenses of the pet are taken care of by the insurer.


All these insurances are provided by different types of insurance companies.

FAQs on Insurance

1. What is the Nature of Insurance?

Insurance is a legal agreement that is prepared between an insurer and the insured. Such an agreement is used in a case where the insurer agrees to pay the insured a certain amount of money at the time of a certain mishap. The agreement must have that certain unwanted situation specific to an extent where the insured can take out the amount at the time of its happening. 

One can go for insurance at the time of death, theft, medical emergency, and much more. The insurer is then responsible for not only all the expenses which have been incurred or the insurance amount, but also to check how much of it is actually reasonable. 

2. What are the Features of Insurance?

Features of insurance are:-

  • Insurance is kind of a safety net that is used for sharing the financial losses which the insured has been affected with

  • Insurance is given by a cooperation of a huge number of people who, in case of any financial losses that may arise, agree to share them. 

  • At the time of getting insurance, the insurer is supposed to evaluate the risks in order to charge the premium according to them. It is simply settled as the more risk there is, so will be the premium that the insured will have to pay. 

  • The insurance amount is not guaranteed to be paid. It will only be paid in case of the occurrence of the contingency event in the insured’s life.

3. Why is it important to get insurance?

Insurance is required for various purposes, but the main one is to safeguard oneself from the mishaps of any contingency occurrences in their life. One gets insurance as a safety net that can help them with sharing or not facing the losses of several of the unwanted happenings. This may include theft of jewelry, death, medical emergencies, etc. Insurance is a great way for one to protect themselves from any losses to their assets or any other sort of contingency expenses there might be. 

4. What does insurance majorly cover?

Insurance is a great way to protect oneself from any of the contingencies that are unwanted. Here are a few of the things that it majorly covers:

  • They provide one with certainty that they have a security

  • It is a sort of risk sharing device

  • Insurance is a way to safe keep one’s family from unforeseen circumstances

  • It is a way to get capital

  • It prevents as well as covers the damages incurred

  • It is a good way to boost the nation’s economy

  • It can give one’s efficiency a boost

5. What are the different types of insurance one can go for?

There are many insurances that a person can go for. All of the insurances are there for safeguarding one or the other aspect of the insured’s life. The following are just a few of the types that one can opt for:

  • Health insurance

  • Car insurance

  • Life insurance

  • Renter’s insurance

  • Travel insurance

There are many more that you can choose based on your objective as well as your needs. You can even get them in a combination. There are also a few of the insurances available that you can take with your family.