An insurance is a legal agreement between an insurer (insurance company) and an insured (individual), in which an insured receives financial protection from an insurer for the losses he may suffer under specific circumstances.
Under an insurance policy, the insured needs to pay regular amount of premiums to the insurer. The insurer pays a predetermined sum assured to the insured if an unfortunate event occurs, such as death of the life insured, or damage to the insured or his property.
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Insurance - Meaning and Definition
The literal meaning of insurance would be an assurance against unforeseen and unfortunate loss. This means, that if you encounter a less than normal event in your normal course of life, and happen to incur a financial loss because of it, you can be compensated.
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For example, you met with an accident on your way to the office in your car and the car suffers damage. Your insurer can reimburse the repair expenses in this case. However, the insurer will not reimburse normal wear and tear like a headlamp stopped working.
How does an Insurance Policy Work?
To understand how insurance works, you should know below terms:
Premium:
is the money you pay to the insurance company to avail of insurance policy benefits.
| Scheme Name | Namo Tablet Yojana |
| Year | 2023 |
| Launched by | By Honorable CM Vijay Rupani |
| Beneficiaries | Students |
| Objective | Providing tablets in Rs.1000 |
| Category | Gujarat Govt. Scheme |
| Official Website | https://www.digitalgujarat.gov.in |
Sum Insured:
Sum insured is applicable for a like home and health insurance. It refers to the maximum cap on the costs you are covered for in a year against any unfortunate event.
Sum Assured:
Sum assured is the amount the life insurance company pays to the nominee if the insured event happens (death of insured).
As discussed above, insurance is a legal contract between the insurer and the insured. The insurance policy lists all the policy's conditions and circumstances under which the insurance company is liable to pay you or the nominee the insurance amount.
When you buy an insurance policy from the insurance company, you will have to make regular payments (premium) for a specified period towards the insurance policy.
The insurance company collects the premium from all the clients. They pool the money for losses that may arise out of an insured event. If you don't claim during the policy tenure, you may or may not receive any benefits. It depends on the policy type and the conditions.
| Life Insurance | General Insurance |
| Term Life Insurance | Health Insurance (Mediclaim) plans |
| Endowment Life Insurance | Vehicle Insurance |
| Moneyback Plans | Fleet Insurance |
| Savings Plans | Home/Property Insurance |
| Child Education Plans | Fire & Hazards Insurance |
| Unit Linked Insurance Plans (ULIPs) | Travel Insurance |
| Liability Insurance | |
| Keyman Insurance |
Life Insurance Policy
| Individual Insurance | Group Insurance |
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Key Features of Insurance
Listed below are the key features of an insurance plan that you should consider:
- Insurance is a tool for risk transfer.
- Insurance is a community solution as several people, who are exposed to the same risk, pool their funds together to bear the loss.
- The contract is based on the ‘utmost good faith’ principle unlike other business contracts.
- Insurance cover does not affect the chance of loss or minimise the magnitude of loss.
- As a party to the insurance contract, you should always try to avoid, mitigate and minimize the losses.
- You can only insure against risks which are unpredictable in occurrence and magnitude.
- Speculative, financial (betting) and business risks cannot be insured.
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