What is insurance policy and how Insurance policy works

What is insurance policy and how Insurance policy works

Let us frame an official definition for Insurance,

“A reimbursement promise for probable losses in future where trading in carried out in form of continual payment”.

Insurance is structured for the protection of monetary well-being of a person, company, or some other body in case of unpredictable loss.

• Some types of insurance are law demands, while in some other cases are optional. After insurance term agreement takes place, a commitment between both persons (i.e. insurer and insured) gets final. In return of payments, also known as premiums, the insurer concurs to pay some amount to policyholder whenever any sort of event takes place.
• Insurance Companies work in different styles, depending on their profile base. They are mainly divided into private and government Insurance companies.
• Both the firms have agents, working for the firm profits, also gaining small benefits for themselves. Comparing them, private companies have two kinds of work style offerings by being either an independent agent or a captive agent.

INSURANCE IS A KIND OF ASSURANCE GIVEN BY THE COMPANY TOTHE POLICY HOLDER TO GIVE COMPENSATION IN CASE OF ANY LOSS OR DAMAGE OR DEATH IS HAPPENED IN LIEU OF SOME PREMIUM .INSURANCE COMPANY RUN THE WHOLE BUSINESS WITH CERTAIN FORMULA. .LET US GIVE A EXAMPLE. .SUPPOSE POLICY HAS BEEN SOLD TO 2000 POLICY HOLDERS AND AVERAGE PREMIUM IS RS 5 000 ..THEN TOTAL COLLECTION IS RS 1000000 AND FROM THEIR EXPERIENCES IT HAS BEEN SEEN THAT OUT OF 2000 POLICY HOLDERS AVERAGE 1 TO 2% CASE COMPENSATION IS TO BE GIVEN AND AVERAGE PAYMENT IS RS 100000 PER CASE AND TOTAL PAYMENT IS RS 400000 ..THEN THE SURPLUS IS LYING RS 600000 …THE COMPANY IS HAVING ADMINISTRATIVE EXPENSES WHICH IS TO BE MET OUT OF THIS SURPLUS ..BESIDE THIS ON GETTING PREMIUM MONLY THE INSURANCE COMPANY INVEST THE WHOLE MONEY IN A SPECIAL FUND SO THAT WHEN COMPENSATION IS TO BE PAID FROM THAT FLEXIBLE FUND IT CAN BE PAID .THE INSURANCE COMPANY ALSO EARN PROFIT OUT OF THIS INVESTMENT OF THE PREMIUM MONEY COLLECTED. ..THUS THE INSURANCE COMPANY RUN THEIR BUSINESS. 

Insurance kya hai? If you do not want to know what the insurance is, then you have selected the right post. It is not necessary to know what the insurance is before taking any insurance.

On taking health insurance, the insurance company covers the cost of treatment in case of illness. Insurance is the weapon to deal with the possibility of any loss in the future. We do not know what will happen tomorrow, so we try to compensate for the potential loss in the future through an insurance policy.

Insurance kya hai?

Insurance means protection from risk. If an insurance company insures a person, then the insurance company will compensate for the financial loss to that person.

Similarly, if the insurance company has insured a car, house or smartphone, then in the event of a breakdown, break, loss or damage of that thing, the insurance company gives compensation to its owner according to the pre-fixed condition.

Insurance is actually a contract between the insurance company and the insured. Under this contract, the insurance company takes a fixed amount (premium) from the insured and pays damages to the insured or the company in the event of any loss according to the terms of the policy.

You have understood what insurance is, but how many types of insurance are there, it is not necessary to know before taking insurance policy.

Type of insurance

At the time of taking insurance, you should know how many types of insurance are there if you do not want to go. In India, insurance is broadly categorized under two groups:

• Life insurance
• General insurance

1. Life insurance:

Life insurance covers policyholders against their untimely demise. In such cases, the insurance company pays the policyholder’s beneficiaries a pre-approved sum.

A few variants of life insurance are listed below:

Whole Life Plan: Whole life plans provide policyholders coverage for the entirety of their life (or till 100 years of age). These plans are often used to create an inheritance.
–Term Plan: Term plans provide a life cover for a specific term. However, no payments are made if the insured survives the tenor.
–ULIP: ULIPs provide a life cover, along with investment in equities, the debt market, etc. In case of the insured’s demise, the nominee gets the sum assured or fund value, whichever is higher.

If the head of the family dies prematurely, then it becomes difficult to manage the expenses of the household. To save the wife /child/parents etc. of the main person of the family from the financial crisis, it is necessary to take a life insurance policy. In financial planning, it is suggested to, first of all, buy a life insurance policy.

2. General Insurance:

All non-life insurance policies are clustered under general insurance. These policies are for shorter tenures (around twelve months), but policyholders have the option of renewing them.

Popular variants of general insurance include:

• Health Insurance

health or medical insurance covers healthcare costs. These policies can be either individual or group policies, which extend the health cover to the whole family.