The importance of insurance, Firstly, what is insurance? So, insurance is a legal agreement that lies between two parties i.e the individual (who wants to be insured) and the insurance company (the insurer). In that, the insurance company promises to give insured to the losses on the happening of the insured contingency. The contingency is the event that creates a loss. It can be loss of death, money, etc. it’s called a contingency because there’s uncertainty regarding the happening of the events that cause loss. The importance of insurance. For the promise, the insurer insured pays the premium in return.
Insurance is a means of security and safety from financial loss. An entity that gives or provides insurance is known as an insurer (insurance company). And a person or an entity who buys insurance is known as a policyholder or insured. The amount of money charged by the insurance company to the insurer for the coverage set forth in the insurance policy is known as the premium.
Now, why is insurance important? So, insurance is important because the life and property of an individual are surrounded by the risk of disability, death, or destruction. These risks may result in your death or it can be a huge financial loss. Insurance is a way to transfer your risk to that company. And in this article, we cover all information about insurance just read along.
But, often we shy away from buying insurance, thinking why do I need to buy a life or health insurance being a young and healthy person? Or, why do I need insurance for my car, I have good driving skills?
Contrary to such thoughts, no matter how healthy we are or how well we are doing financially or how good a driver we are, we all need insurance. This is simply because insurance acts as a safety net that financially protects you and your family when chips are down.
In this blog, we will talk all about insurance, i.e. what it means, what are the most essential kinds of insurance, and why it is important.
The concept of insurance is very simple to understand. You pay a monthly or yearly fee to the insurance company to insure your life, health, vehicle, property, etc for a certain period. In return, the insurer pays for the financial damages in case of any harm to the insured person or object.
So you are transferring the risk of a financial loss you might experience due to life’s uncertainties to an insurance company for a small fee. For example, if you meet with a car accident and need to be hospitalized. Your health insurance policy will cover the medical costs for hospitalization. And, your car insurance will pay for the damages to your car. Meanwhile, if you die during the accident, your family will receive a lump sum amount for your term insurance.
From arts to pets, there is insurance available for a number of things, and one should avail of insurance as per their needs and priorities. But there are 3 types of insurance that are most essential.
How Did Insurance Work?
Here, the insurer (the insurance company) and the insured (individual) get a legal; contract for the insurance that is known as an insurance policy. The insurance policy documents have all information about your insurance for example under which terms and conditions the insurance company will pay out the insurance amount to the insured person or to the nominees. So, before getting your insurance policy you must read all the documents carefully.
Insurance is a key to protect yourself and your family from a financial loss. Usually, the premium for a big insurance cover is much lesser in terms of money paid. The insured (insurance company) takes the risk of providing a high cover for a small premium because very few insured people actually need to claim the insurance.
Any individual or the company who wants to be insured can seek insurance from an insurance company, but the decision to provide the insurance is at the discretion of the insurance company. The insurance company can evaluate the claim application to make a decision. Usually, the insurance company refused to provide the insurance to high-risk applicants.
Types of insurance?
Any kind of risk that can be quantified can potentially be insured. Specific kinds of risk that may give to claims are known as perils. An insurance policy will set out in detail which perils are covered by the insurance policy or not. Insurance can be categorized into a few types.
As the name suggests, health insurance is for health. Health insurance covers the medical costs for expensive treatments. Here, different types of health insurance policies cover an array of ailments and diseases. You should buy a generic health insurance policy as well as policies for a specific disease. The premium paid towards a health insurance policy covers hospitalization, treatment, and medication costs.
Here also as name suggesting that life insurance is for insurance of life. You should buy life insurance to make your dependents financially secured in the event of an unfair event. Life insurance is important if you are the only person in your family you get paid or if your family is almost dependent on your income. Under life insurance, the policy holder’s family has financially compensated in case the policyholder expires during the running period of the policy.
Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum payment or an annuity. Mostly, in states, a person cannot purchase a policy on another person without their knowledge. In many countries such as the UK and the United States, the tax law provides that the interest on this amount value is not taxable under certain circumstances.
It is for the insurance of education as the name suggests. Child education insurance is related to the life insurance policy which has been specially designed as a saving tool. Education insurance is a great way to provide a lump sum amount of money when your child reaches the age of higher education and is ready to join college at 18 years of age or above.
This fund can be used to pay for your child’s education expenses. Under this insurance, the child is the life assured or the recipient of the funds taken. While the guardian/parent is the legal owner of the insurance policy. You can estimate the money that will go into funding your children’s higher education using an education planning calculator.
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Auto insurance for the insurance of vehicles. In today’s era, car insurance is an important policy for car owners. This auto insurance protects you against untoward incidents such as an accident. Well! Some policies also compensate for damages to your car during natural calamities such as earthquakes and floods. It also covers third-party liability where you have to pay for damages to other car owners.
Auto insurance typically covers the property coverage, for the damage or theft of the vehicle. Liability coverage covers the legal responsibility to others for bodily injury or property damage. Also, the medical coverage, for the expenses of treating the injury, rehabilitation and sometimes lost wages and the funeral expenses.
Home insurance is for the insurance of homes as the name suggests. We all dream of owning homes. Home insurance will help you with covering the loss of damages caused to your house due to accidents such as fire and other natural calamities. This insurance covers other instances like earthquakes and lightning etc.
Property insurance may include specialized forms of insurance such as earthquake insurance, flood insurance, boiler insurance, home insurance. The term property insurance is like casualty insurance. It is used as a broad category of various sub types of insurance. Some of them are aviation insurance, boiler insurance, crop insurance, etc.
Reasons everyone should get insurance
As we said at the start, most people think insurance is an unnecessary expense. The reason is that we feel confident about our future and our ability to tackle unseen circumstances. But there is a huge difference between our perceived ability and reality. For instance, a few years of savings can vanish in case of a medical emergency. That’s just one example.
Here are 3 reasons why getting insurance is important.
#1: Insurance ensures family’s financial stability
No matter how much you have managed to save or what your monthly income is, an unexpected event can burn a huge hole in your pocket or can simply jeopardize your family’s financial future.
For example, if you do not have adequate life insurance, your family might have to go through financial hardship if you were to meet with an untimely death. Though no amount of money can replace the loss of loved ones, having life insurance would save them from going through financial hardship. Meanwhile, if you or your family do not have enough health insurance, then huge medical bills during any treatment can completely shake your finances.
So it is essential that you cover yourself, your family with an adequate amount of insurance.
#2: Insurance brings peace of mind
The premium you pay to the insurance company is the price that guarantees that the insurance company will cover the damage in case of an unforeseen event. And, that guarantee that your risk is covered brings peace of mind.
For example, let’s suppose you die an untimely death at a time when you still have several milestones to achieve like children’s education, their marriage, a retirement corpus for your spouse etc. Also there is a debt as a housing loan. Your untimely demise can put your family in a hand to mouth situation. But, if you would have bought term insurance considering all these factors, your family would be able to sail through during the hard times.
#3: Insurance reduces stress during difficult times
No matter how hard you try to make your life better, an unforeseen event can completely turn things upside down, leaving you physically, emotionally and financially strained. Having adequate insurance helps in the sense that at least you don’t have to think about money during such a hard time, and can focus on recovery.
For example, suppose you or someone in your family had a heart attack and needs immediate hospitalization. Such treatments at good hospitals can cost lakhs. So having health insurance in this case, saves you the worries and stress of arranging money. With insurance in place, any financial stress will be taken care of, and you can focus on your recovery.
How do I choose an insurance provider?
Here are a few things to consider when choosing an insurance company to work with:
What types of insurance does the company offer? Can you buy all of your insurance through the company and receive a discount?
Would the company be able to pay your claim? Look to U.S. credit rating agency AM Best to determine the company’s financial strength.
Would you prefer the help of a local insurance agent? Or would you prefer to manage your insurance on your own?
Do others recommend this company? What are people saying about it in online customer reviews?
Benefits of insurance?
Apart from the security and safety, there are some benefits of buying insurance, that is the income tax benefits that you can claim. The first benefit is a life insurance premium of up to rupee 1.5 lakh can be claimed as a tax-saving deduction under section 80C. And the last one is a medical insurance premium of up to rupees 25,000 thousand for yourself and your family and 25 thousand for your parents can be claimed as a tax-saving deduction under section 80D. You can claim these benefits of insurance at the time of e-filing income tax returns.
Be it life insurance, general insurance, or health insurance, you can buy these insurance policies online and as well as offline. Like there are insurance agents who will help you to buy a perfect policy you can afford. There are also websites where you can buy an insurance policy form. Just ensure that you have done your research before choosing and investing in an insurance policy.
Frequently Asked questions:
Do I really need life insurance?
A simple way to answer this is by asking: “Do I have anyone dependent on my salary to sustain their standard of living?” In other words, if you were to pass, would those still alive have issues covering the cost of your burial? Covering rent or mortgage payments and other bills? What about any remaining medical costs? Would they have enough money to cover those and still maintain their normal life? If the answer to any of these is “No, they wouldn’t,” then you should consider what life insurance options work best for you and your needs.
How do I buy life insurance?
Remember, only do business with a licensed and well-reviewed insurance agent or company. Once you have an insurance agent or company who you feel confident doing business with: Decide how much coverage you need, for how long, and what you can afford to pay. Learn what kinds of policies will provide what you need and pick the one that is best for you. Visit our Choosing Life Insurance page for more details. Do not sign an application until you review it carefully to be sure the answers are complete and accurate. Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy. Be sure to review your contract and understand exactly what is or isn’t covered. You can review our blog post, Understanding Your Insurance Policy for more tips on how to do this. When you buy a policy, make the check payable to the company, not the agent.
What is the “free to look” period?
Is it true that some companies won’t turn applicants down?
What’s the difference between term and permanent life insurance?
Term insurance generally has lower premiums than permanent policies. However, term life insurance does not build up cash value that you can use in the future. Term covers you – as the name suggests – for a term of one or more years. If you die within that term, death benefits are paid out. You can renew most term insurance policies for one or more terms, even if your health has changed, though premiums may be higher. So be sure to ask your insurance agent or company if you will have this option to renew after the end of the term and if there is an age cut-off for renewals. You may also combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income. Permanent insurance policies remain in place as long as the premium is being paid. They also all have a cash value that increases over time and allows the policyholder to borrow against that cash value. Because of the savings element, the premiums for permanent insurance tend to be higher compared to term insurance premiums. There are four types of permanent life insurance: whole life, universal life, variable life, and variable universal life. You can learn more about these different types of permanent life insurance here, on our website.
What does “fully paid up” mean on a permanent life insurance policy?
“Fully paid up” means just that. You have made enough premium payments to cover the cost of insurance for the rest of your life.