Insurance is a financial contract. In which a person or company shares their risks with an insurance company. According to this contract, the policyholder pays a small amount, i.e. insurance premium, on a quarterly or annual basis. In return for that premium, the insurance company compensates a predetermined amount if a specific risk (accident, illness, property damage, etc.) occurs. This can be called a risk management tool.
Basic concept of insurance
Let’s take a simple example. You buy a house. If the house catches fire, you insure it to cover the loss. You pay a premium of Rs. 2000 every month. If a fire occurs, the insurance company will cover the cost up to Rs. 20 lakhs. Here, fire is the risk, and the premium is the price for sharing that risk.
In this method, insurance provides financial protection. It is based on sharing the losses caused by specific events.
History of Insurance
The concept of insurance dates back to ancient civilizations.
In Babylonian times (1750 BC), according to the Code of Hammurabi, when merchants took out loans, they had to share the amount if they could not repay the loan.
In China (3rd century BC), shipping merchants divided their cargo among several ships to avoid the dangers of storms.
In medieval Europe, labor unions (guild groups) collectively compensated their members for losses.
The modern insurance system began in England in the 17th century. In 1688, Lloyd’s of London was formed as a ship insurance market. In the 18th and 19th centuries, life insurance, health insurance, etc. were developed.
Types of Insurance
Insurance comes in many forms. Some of the most important are:
Life Insurance
The purpose of this is to ensure the financial security of the family.
The types within this are:
Term Insurance – protection provided only for a specific period of time.
Endowment Policy – A plan that combines both insurance and savings.
ULIP – An insurance and investment plan.
Health Insurance
Its purpose is to cover medical expenses.
The types within this are:
Individual Health Insurance – Insurance for an individual.
Family Floater Plan – A single plan for a family.
Critical Illness Cover – Coverage for specific critical illnesses only.
Motor Insurance
Its purpose is to provide compensation for vehicle damage and third-party damages.
The types within this are:
Comprehensive Policy – Coverage for all types of damage.
Third-Party Liability – Coverage that is mandatory by law.
Property Insurance
Its purpose is to cover damages to property such as home, office, etc.
This may include perils such as fire, flood damage, theft.
Travel Insurance
Its purpose is to cover losses incurred while traveling.
This may include trip cancellation, medical emergencies, cargo damage, etc.
How Insurance Works
Many people pay premiums to build up an insurance fund by sharing the risk.
If an accident occurs, the victim will make a claim.
The insurance company will check if the event is covered by the insurance contract and pay the appropriate amount.
Key terms of insurance
Policyholder is the person who has purchased the insurance.
Insurer is the insurance company.
Beneficiary is the person who receives the compensation.
Benefits of insurance
Financial security – Protection from unexpected losses.
Risk management – Confidence in business and personal life.
Peace of mind – Reduces financial burden in times of crisis.
Investment opportunities – You can increase your income through plans like endowment, ULIP.
Legal requirements – Motor insurance is mandatory by law.
Key principles of insurance
Utmost Good Faith – The policyholder must disclose all the facts.
Insurable Interest – The insured must have a direct financial interest in the loss.
Indemnity – The insurance company will only cover the actual loss.
Proximate Cause – Whether the main cause of the loss is within the scope of the insurance.
How to Choose Insurance
First, you need to understand your needs. You need to consider your age, responsibilities, and financial goals.
Research the insurance company. Look at the claim settlement rate, customer service, etc.
Read the insurance document properly. Understand the coverage, exclusions, and term.
Compare premiums based on your age, health, and occupation and choose the plan that suits you.
Conclusion
Insurance is a safety net for the future. It provides the ability to withstand unexpected financial shocks. By paying a small premium, you can protect your family, business, and assets from major risks. While risk is a part of life, insurance makes it less unpredictable. So choose an insurance plan today according to your needs and live safely.
