What is Insurance: Meaning, Types and Benefits | A person’s life and property are surrounded by risks of death, disability or destruction. These risks can result in financial losses. Insurance is a smart way to transfer such risks to the insurance company. Insurance transfers all the risks to the company, and if you have taken the insurance, you are paid in lieu of those risks. Read this entire article to get more information about insurance.
What is Insurance: Meaning, Types and Benefits
What is insurance?
Insurance is a lawful policy between two gatherings for example. insurance company (insurer) and individual (insured). Insurance is a way of managing your risk. When you buy insurance, you buy protection against unexpected financial loss. The insurance agency pays you or somebody you pick assuming that something awful happens to you. If you have no insurance and an accident occurs, you may be responsible for all related costs.
How does insurance work?
The insurance company and the insured get a legal contract for insurance, called an insurance policy. An insurance policy contains details about the terms and conditions under which the insurance company will pay the sum assured to the insured person or nominee. Protection is a method for shielding yourself and your family from monetary misfortune. Generally, the premium for a large insurance cover is very low in terms of the money paid. The insurance company takes this risk of offering high cover for a small premium because very few insured people actually claim the insurance. Because of this you get insurance for a large amount at a low cost. Any person or company can obtain insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies refuse to insure high-risk applicants.
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What types of insurance are available in India?
Insurance in India can be broadly divided into five categories:
Life Insurance
As the name suggests, life insurance is insurance for your life. You buy life insurance to ensure that your dependents are financially protected in the event of your untimely demise. Life insurance is especially important if you are the sole breadwinner for your family or if your family is heavily dependent on your income. Under life insurance, the family of the policyholder is financially compensated in case the policyholder expires during the policyholder’s term.
Health Insurance
Health insurance is purchased to cover medical expenses for expensive treatments. Different types of health insurance policies cover a range of diseases and ailments. You can purchase general medical coverage strategies as well as arrangements for explicit illnesses. The premium paid for a health insurance policy usually covers the cost of treatment, hospitalization and medicine.
Vehicle Insurance
In this day and age, vehicle insurance is a significant contract for each vehicle proprietor. This protection safeguards you against any inappropriate occurrence like mishaps.
Some policies also cover damages to your car during natural calamities like floods or earthquakes. It also covers third party liability where you have to pay damages to other vehicle owners.
Education Insurance
Child education insurance is similar to a life insurance policy that is specifically designed as a savings tool. Education insurance can be a great way to provide a lump sum when your child reaches higher education age and enrolls in college (18 years and above). These funds can then be used to pay for your child’s higher education expenses. Under this insurance, the child is the life insured or the beneficiary, while the parent/legal guardian is the policy owner. You can estimate how much money will be spent on your children’s higher education using an education planning calculator.
Home insurance
We all dream of owning our own home. Home insurance can help cover loss or damage to your home due to accidents like fire and other natural disasters or hazards. Home insurance covers other cases like lightning, earthquake etc.
What are the tax benefits of insurance?
Aside from the wellbeing and security advantages of purchasing protection, there are additionally personal tax reductions that you can benefit.
Life insurance premium up to ₹1.5 lakh can be claimed as tax saving deduction under Section 80C
Medical insurance premium up to ₹25,000 for you and your family and up to ₹25,000 for your parents can be claimed as tax saving deduction under section 80D.
These claims have to be made at the time of e-filing income tax return.