What is insurance?

This article explains what is insurance and how does it benefit you.

Reema had landed her first job recently and was looking for having some fun on a weekend. On one Saturday, she and her family members decided to have a small party at their house.

Over a hearty dinner, Reema's father asked her,'Reema, have you thought of buying an insurance cover?' Reema replied,'Dad, I don't know a thing about insurance. Can you tell me something about it?'

Over the next one hour, Dad explained Reema what insurance is.

What is Insurance?

Insurance is something that protects you or your family when you lose something. You could lose your life, assets, vehicle, house, health, etc. 

Based on the kind of loss, there are broadly kinds of insurance. Which are those?

1. Life Insurance

When you buy life insurance, you cover your dependents financially after your death. This means that after the death of a policyholder, his/her dependants get a lump sum money from the insurer. This sum of money is called Sum Assured. 

To buy a life insurance policy, you need to pay a certain sum to the insurer periodically. This sum is called Premium. 

There are two kinds of life insurance plans- Term Insurance, and Whole Life Coverage. In a term insurance plan, you buy a policy for a definite term or period. A Whole Life Coverage plan covers you for the rest of your life. 

You should buy insurance for two reasons:

• Protecting your near and dear ones after you are gone
• Saving on your income tax under Section 80 c of the Income Tax Act. 

   2. Health Insurance

A health insurance plan takes care of your health and medical expenses during your hospitalization. Many employers provide health insurance to their employees as part of their compensation benefits but it would be a wise idea to buy a mediclaim policy on your own. 

Buying health insurance is important if you want to avoid huge medical and hospitalization expenses. When you buy this policy, your insurer pays off your medical expenses. You don't have to pay those bills from your pocket. These expenses may be related to your surgery, hospital room rent, medicines, bandages, medical tests, etc. 

Please note that your medical insurance may not cover all kinds of illnesses, treatments, and hospitals. Before buying your medical insurance, please speak with your insurer about the details of your policy. 

When you buy medical insurance, you are able to save on your tax liability. 

   3. Auto Insurance

The third kind of insurance is Auto Insurance. It takes care of any damages to your / third party's vehicle in an accident. A typical auto insurance policy also takes care of any compensation if a third party dies in an accident involving your vehicle. If you own a car, motorcycle, autorickshaw, truck or a bus, you must have auto insurance. 

There are two kinds of auto insurance policies- Third Party Liability and Comprehensive Care Policy. In the former, the policy takes care of any losses to life and property of the third party in an auto accident. It is mandatory to buy this policy as per the government rules and regulations. (Motor Vehicle Act).

A Comprehensive Care Policy takes care of your losses as well. It is not mandatory to buy this coverage. 

Also read- What is Life Insurance?

Insurance Companies

There are various insurance companies available. Some of those are:

1. Life Insurance- Life Insurance Corporation, Max Life, etc.

2. Health/ Medical Insurance- Apollo Munich, Star Health and Insurance Co. Pvt. Ltd

3. Auto Insurance- Bajaj Allianz, Oriental Insurance, New Assurance

Do you have any queries on insurance? Please leave them in the comment box below.