What is 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 as a policy. An insurance policy is a contract in which an individual or an organisation gets financial protection and compensation for any damages by the insurer of the insurance company. In simpler words, one can answer what is 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 

  • Minimising the loss   

Importance of Insurance

Some of the importance of insurance are:

  • It protects the insured’s family if something unexpected happens. The family don’t need to worry about the finances in this case.

  • Unexpected events can happen in life like illness, injury and death, this can leave a family in emotional stress, but with insurance alongside, all this stress can be minimised.

  • Insurance provides financial security to one’s family when he/she is not around. Family with an insurance policy will have the courage to move forward.

  • It can give some peace of mind to the insured that even if he/she goes through some unexpected events, his/her family will not suffer.

  • The funds provided by the insurance company is sufficient to manage the school fees and standard of living of the insured children. 

Functions of Insurance

The functions of insurance can be listed as follows:

  • They provide certainty to the insured.

  • They ensure the protection to 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 are 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 (Frequently Asked Questions)

Q1. What is the Nature of Insurance?

Insurance is a legally bound agreement between an insurer and the insured. In this agreement, the insurer agrees to pay a certain amount of money to the insured if something unwanted takes place. The unwanted situation must be specified in the agreement that if this happens then, the insurer is liable to pay a certain amount to the insured. The unwanted situation can be death, accidents, sickness, theft, etc. The insurer is responsible for all the expenses incurred by the insured.

Q2. What are the Features of Insurance?

Features of insurance are:-

  • Insurance is a device that is meant for sharing the financial losses which might affect an individual or his/her family.

  • Insurance is a cooperation of a large number of people who agree to share the financial losses that arise due to a particular risk that is insured earlier.

  • In insurance, before the contract is settled, the risk is evaluated to charge premium according to it. More the risk, the more will be the premium.

  • The payment is made only if a contingency event occurs in the life of the insured.