In simple terms, it means protection of anything from financial loss. However, in terms of insurance, it is a contract in the form of policy the insurance companies provide that we can reimburse against losses. There are 7 Basic Principles of Insurance which all the insurer and insured have to follow.
A formal social tool for mitigating risk by transferring the risks of multiple individual entities to the insurer.
IRDAI(Insurance Regulatory and development of India) is a regulatory body that manages the overall development of insurance in India.it also promotes and ensures the proper growth of this industry as per the IRDA act 1999.
Click here to read all Insurance acts of India
The Insurance Institute of India was established in the year 1955 formerly known as the federation of insurance institutes. its aim is to promote insurance education and training in India.
Contents
About insurance history
Insurance started in India in the year 1818 and it came from England. The first company in India was “Oriental Life Insurance Company” started by European in Calcutta. the companies which came during that period were looking only after Europeans need and they were not insuring Indians. However later they started insuring Indians but they were charging a high premium.
Later in the year 1870, the first Indian company started its insurance business named “Bombay Mutual Life assurance society”. it insured Indians at normal rates.
As per the data from LIC, the first two decades of twenty centuries insurance companies grew huge from 44 companies with total business Rs 22.44 crore to 176 companies with total business Rs 298 crore.
Later in the year, 19th June 1956 life insurance corporation act was passed by the Indian parliament and the life insurance corporation of India was introduced on 1st Sept 1956.
5 reasons why insurance is important
1-Family Protection
Our family depends on us for any kind of financial assistance which is why we should have it as soon as we start a family, it also makes the members of the family feel secure in any situation.
2-Tension free in any situations
No one knows what is going to happen next. unexpected things can happen like illness, major disease, disability, etc will break us financially if there are no proper plans. therefore being insured can make us feel relax.
3-Finacial security enjoyment
In the case of unforeseen tragedies, we need not depend on someone for arranging money, in fact, we can slowly move forward with the help of a policy.
4-Peace of mind
Anyone’s health is irreplaceable by any amount of money. In case if anything happens to you, your family will be protected by the insurance.
5-A gift of security to leave behind
Sudden death can protect your family against any financial issues because of insurance as there will be a lump sum benefit.
How insurance company works
We will have a contract between policyholders and insurers. the policyholder has to pay the premium based on terms and conditions, therefore in return, the insurer bears the expenses. for example -in case of medical emergencies, health insurance will cover expenses like the post & pre hospitalizations, medical bills, etc.
Insurance companies evaluate the risk associated with the insurer and then based on the information it calculates premium. In case if you suffer any damage when any insured event occurs the company will pay you, however, if you did not provide the correct information your claim is very likely to get reject. for example, if you are staying near noise creating industry or in a much-polluted city or you have any disease then your health insurance cost will go higher.
your premium can be low with respect to the possible damages but the insurer will pay you easily because they get the premium from many people but the number of claims is very less. In this way, they share risk too much extent.
The insurance companies get lot of premium in small amounts over time, after paying the claimed amount to the individual or companies which is very less that they get as premium, companies invest and increase the chances of getting more profit.
Types of insurance policy
Basic insurance terminology
Knowing the below mentioned commonly used insurance terms will help you to understand it better.
1-Policy
In simple words, it’s a contract between an individual and the company which provides insurance. Also through the policy, the insurer is bound to pay in case if claims have been raised.
2-Agents
Persons who are authorized to sell insurance called Agents. They can be self employed or independent working with multiple companies and in return they get commissions.
3-Insurer
In short the insurance company is called “insurer”.
4-Policy holder
The person or persons whose risk of financial loss is protected by the policy.
5-Policy period or tenure
The period for which the policy will protect.it can be ranging from 1 year to 100 years or even whole life depending on the policy and terms and conditions.
6-Policy limit
The maximum amount that the policy will pay, in total or under any coverage.
7-Policy expiration date
The date when the current policy expires. this date can be found on the insurance card or current declaration page. please do not count this date as the next payment date or renewal payment date.
8-Premium
Premium has different meanings depending on the scenario for example in case if you are buying a mobile phone or any physical product, “premium” means the extra amount you have to pay in order to avail of additional and advanced features.
But in terms of insurance, it means the amount you have to pay to the insurer on a regular basis.it won’t change over a long period of time however it depends on the situation. For example, if the government increases the tax on it, in that case, the premium might change.
9-Quote
An estimated cost, based on information supplied by the applicant to the insurance company.it might vary depending on the information you provided to the insurer. For Example, if we talk about life/health insurance, if the applicant smokes or drinks or any diseases he/she is having the quote will have a higher amount.
10-Settlement
It is typically policy benefit or policy claim. It refers to an agreement between the two parties in the policy contract between the amount and the method of payment.
11-Reimbursement
Payment of the amount related to the amount of loss. in other words, the amount will be provided by the insurer to the policyholders as per terms and conditions.
12-Claim
It is a intimation to the insurer that the loss may be covered under the terms and conditions.
13-Renewal
Something which is continuing with full force and effect and is about to end. the policy can be renewed by issuing a new policy or renewing the old policy.
14-Lapse
Termination of a policy due to failure to pay premium.
15-Deductibles
It is the amount that the policyholder has to pay when he/she claims for their insurance. In other words when the claim amount exceeds the deductibles then only the company will pay.
For example-if, the claim amount is Rs 60000 and the deductible amount for the policy is Rs 50000 then the company will pay you Rs10000, however, if the claim amount is less than the deductible company is not liable to pay.
16-Maturity age
It is the age at which the policy ends or terminates of the life assured. For instance, if you are 20 years old and you opt for the policy until 50 years which means the policy will mature in 30 years.
Basically its very similar to policy tenure, but its different prospective to say how long plan will be in force.
17-Surrender value
In case if the policyholder decides to discontinue the plan before maturity age, the company will pay a certain amount to the policyholder based on terms and conditions is referred to as surrender value.
18-Underwriting
It is a process by which the insurance professionals underwriter evaluate and examine the overall risk associated with the insurer whether the coverage should be provided or not.
In general terms, the underwriter calculates all risks and charges for coverage and they guarantee payment in case of any damage or financial loss to the insurer.
19-Beneficiary
This is the person who would get the benefits/amount in case if the policy holder pass away while on plan.
20-Sum assured
It is the guaranteed amount of money that the policyholder will receive. In case of any unexpected event like death, the sum assured is the amount that is paid to the beneficiary.
21-Rider in Insurance
The rider is the provision that adds benefits or amends the terms of the basic. Riders provide options such as additional coverage to the insured parties, or they may limit or even limit coverage. There is an additional cost /premium if one party decides to buy the rider.
