Finance

All you need to know about Insurance

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Insurance is financial protection or reimbursement against various kind of losses. It is a contract or a policy issued by the insurance policy provider. It is a form of risk management where the insurance company handles the financial reimbursements.

In layman’s language, insurance provides you with a certain level of protection against unexpected risks and uncertainties in life. Insurance offers financial protection should or when a disaster occurs. But before dwelling into it, you need to understand specific terminologies and terms associated with it.

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Any insurance policy is aimed to make payments for the insured more affordable. In a nutshell, the primary objective of insurance policies is to protect you against big or small financial losses. Thus, it is used to hedge against uncertain loss, liability or damage to the insured or their property.

The basic terminologies you must be aware of to understand more about insurance are as follows. Any entity or person buying insurance is referred to as the policyholder or the insured. The insurance provider may be an insurance company, insurance carrier, underwriter, or an insurer.

How does insurance work?

Any transaction concerning insurance entails the following. The insurer presuming a guaranteed or assured loss makes a relatively small payment to the insurance company.  In return, the insurer promises to compensate any damage or covered loss to the policyholder when need arises.

The loss covered may be a financial loss or a non-financial loss. However, in the case of the latter, the insurance must be determined in monetary terms only. Typically, the non-financial losses entail the policyholder’s insurable interest claimed recognised via ownership, pre-existing relationship or possession.

The insurance policy is a contract provided to the insurer. It is a detailed document of the insurance terms, conditions, circumstances where the insurer is subject to compensate the policyholder. To avail the insurance claim, the insured must pay a small amount of money called premium to the insurer.

The insurer covers only the potential loss entailed in the policy. In case the insured experiences any such loss, they submit a claim to the insurance company. The insurer then processes the application via the claims adjuster.

The different types of insurance

There are more than 100 kinds of insurance coverages of various goods and entities. However, the main types or the common ones are as follows. Health insurance, life insurance, general insurance, vehicle insurance, home insurance, property insurance, and liability insurance.

Apart from these, one can also avail pet insurance, travel insurance, flood insurance, critical illness insurance, to name a few. The overwhelming number of various coverages will undoubtedly leave you confused. Which policy do you need? If at all it will benefit you in the long run? These are the common questions that plague you. While it is imperative to opt for insurance, you must be wise about the one that you would need.

Thus, before seeking an insurance provider, you must first determine the kind of insurances you would need. Generally, there are three main types of insurance any person irrespective of their age must-have. They are life insurance, health insurance, and auto insurance.

While health and life insurances can be opted by anyone, the exception is vehicle insurance. It is because auto insurance or vehicle or motor insurance is a must-have to all kinds of automobile owners. Each type of insurance policy and their terms and conditions must be adhered to by the insurer and the insured.

Life Insurance and the types of life insurance

Life insurance aims to provide for your family you leave behind. It is a vital type of coverage you must opt for if you have a family financially depending on you. It is important to note that life insurance helps your family when it is 10x your annual income. Meaning, when claimed, it will leave a comfortable financial cushion to your family apart from covering existing expenses.

Life insurance is of two fundamental types, term life and traditional whole life. While term life is where you pay for a determined period, traditional whole life involves paying a premium until you die. For deciding between the two life insurance policies, it is imperative to discuss it with your financial advisor. Along with it, you must also consider certain factors like your occupation, age, number of dependents, their expenses, etc.

Health Insurance and its benefits

Medical costs incurred by an individual in a year is ever rising. Medical insurance is a must-have for any person who has not saved enough funds for their medical care. Adequate health insurance will cover the expenses of eleventh-hour medical treatment and hospital costs. Opting for medical insurance from an early age will help you when ailments strike in your old age.

One of the benefits it offers is that it covers all your medical and surgical expenses. Generally, there are two types of reimbursements for health insurance. One is where the policyholder pays for the medical costs while the insurers subsequently reimburse it. The other is where the insurance provider directly reimburses medical expenses.

Auto Insurance or vehicle insurance

Car is the most common automobile that is insured. Auto insurance protects the vehicle owner from any financial loss incurred during damage or theft of the insured vehicle. Some countries require motor owners to opt for vehicle insurance. Citizens of such countries are also subject to random checks looking for insurance proof.

Vehicles lacking insurance coverage are thus, subject to hefty fines, penalties, and in some instances, suspension of driving license. In case of damage due to vehicle accident, replacing and repairing the vehicle becomes expensive without auto insurance.

Depending on the kind of auto insurance, the medical expenses incurred by driver and passenger during an accident is also covered. Proper vehicle insurance protects you from litigations, theft, vandalism, and natural disasters and calamities.

Whether auto, health or medical insurance, the bottom line is, the higher the premium, the better is the insurance cover. Insurance is imperative as it hedges against uncertain risks. Contact your financial or insurance advisor today for best possible plans. If you opt for the three necessary coverages, you are assured for life. All it requires is a little investment as timely payment of premium every year.