What is Insurance all about?

Introduction

An element of risk is involved in every sphere of our life. The financial implications of these life risks can be significant. Insurance is an excellent risk management tool that safeguards you and your loved ones from the financial perils of unforeseen situations. To understand what is Insurance, think of it as a contract between two parties – the insurer and the insured.

In some scenarios, the former promises to provide monetary compensation to the latter in return for specific premium charges. It is a transfer of risk between the insurance seeker to the insurance provider.

Insurance jargons

When we talk about Insurance, there is a whole gamut of expressions and technical words associated with it. Without knowing the meaning behind these jargons, it can be intimidating for anyone to buy Insurance. Some of these commonly used ones are:

Deductibles

It is the cost you bear as the insured party toward your Insurance claim. When you have invested in the Insurance policy, it might confuse you as to why you must bear costs toward a claim amount. The idea behind setting a deductible clause in an Insurance policy is to limit the small claims made by insured parties. It is to discipline that insured parties follow to file genuine claims and limit the small, unnecessary claims.

Note, the deductible amount varies between contracts and has an inverse relationship with the Insurance premiums. If you set a high deductible amount, the Insurance premium gets lower.

Annuity

They are a category of Insurance that are closely associated with your pension. One of the primary worries of retired people remains the elimination of their regular income stream via salary. Through annuity Insurance, an agreement gets established between you and the Insurance company. This agreement renders your Insurance provider releases a stream of equal payments throughout the term at a specific interval.

However, to gain these series of equal payments, you need to make a lump sum investment with your Insurance provider first. This amount gets further invested by the Insurance company, and you receive the generated returns.

Beneficiary

You find this typically under Life Insurance. It is the person or entity who will receive the Life Insurance proceeds in the event of the policyholder’s death.

Exclusions

This is an important term in the Insurance market. Exclusions refer to situations whose presence can invalidate the Insurance claim. You must read the exclusion specifics of your Insurance online to avoid any surprises later.

Freelook Period

You may have come across this in Life and Health Insurance policies. It refers to a 15-day window, starting from your policy start date, within which you can return your policy without any charges levied. For those who have bought Insurance online, some companies also provide a 30-day window.

Grace period

Untimely payment of your Insurance premium can cause a lapse in the coverage. However, Insurance companies offer a specific grace period, which implies the timeline after your premium due date during which your policy coverage remains intact. You must fulfil the premium requirement within this grace period to continue with the benefits of your Insurance.

Surrender value

There could be situations wherein you decide to cancel your Insurance before the term ends. The term surrender value refers to the amount you receive if you complete your policy contract before maturity. This is specifically for endowment policies that have a savings component embedded along with the life cover.

Types of Insurance

There are several categories of Insurance, serving different purposes. Some of the most common Insurance policies are:

• Life Insurance
• Health Insurance
• Motor Insurance (car and two-wheeler)
• Travel Insurance
• Home Insurance
• Liability Insurance
• General Insurance
• Crop Insurance
• Credit Insurance
• Wedding Insurance
• Reinsurance

Also Read: Does Life Insurance in India cover deaths due to Coronavirus?

Conclusion

The Insurance market is vast. When you think of buying Insurance of any kind, you must perform due diligence and do research. You must understand these terms used in the context of your policy to avoid rude shocks later.