2. INTRODUCTION
Insurance is a means of protection from financial loss. It is a
form of risk management, primarily used to hedge against the
risk of a contingent or uncertain loss.
An entity which provides insurance is known as an insurer,
insurance company, insurance carrier or underwriter. A person
or entity who buys insurance is known as an insured or as a
policyholder. The insurance transaction involves the insured
assuming a guaranteed and known relatively small loss in the
form of payment to the insurer in exchange for the insurer's
promise to compensate the insured in the event of a covered
loss. The loss may or may not be financial, but it must be
reducible to financial terms, and usually involves something in
which the insured has an insurable interest established by
ownership, possession, or pre existing relationship.
3. MEANING
An arrangement by
which a company or
the state undertakes
to provide a
guarantee of
compensation for
specified loss,
damage, illness, or
death in return for
4. HISTORY
Methods for transferring or distributing risk were practiced
by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC,
respectively. Chinese merchants travelling treacherous river rapids would redistribute their
wares across many vessels to limit the loss due to any single vessel's capsizing. The
Babylonians developed a system which was recorded in the famous Code of Hammurabi, c.
1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a
loan to fund his shipment, he would pay the lender an additional sum in exchange for the
lender's guarantee to cancel the loan should the shipment be stolen, or lost at sea.
Circa 800 BC, the inhabitants of Rhodes created the 'general average'. This allowed groups
of merchants to pay to insure their goods being shipped together. The collected premiums
would be used to reimburse any merchant whose goods were jettisoned during transport,
whether due to storm or sinkage.
5.
6. HOW DOES INSURANCE WORK?
• The insurer and the insured get a legal contract for the insurance, which is called the
insurance policy. The insurance policy has details about the conditions and circumstances
under which the insurance company will pay out the insurance amount to either the
insured person or the nominees.
• Insurance is a way of protecting yourself and your family from a financial loss. Generally,
the premium for a big insurance cover is much lesser in terms of money paid. The
insurance company takes this risk of providing a high cover for a small premium because
very few insured people actually end up claiming the insurance. This is why you get
insurance for a big amount at a low price.
• Any individual or company can seek 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 provide insurance to high-risk applicants.
7. PRINCIPLES OF
INSURANCE
- Utmost Good Faith
- Insurable Interest
- Proximate Cause
- Indemnity
- Subrogation
- Contribution
- Loss Minimization
8. IMPORTANCE OF
INSURANCE
- Provides protection against
occurrence of uncertain events
- Device for eliminating risks and
sharing losses
- Co-operative method of spreading
risk
- Facilitates international trade
- Serves as an agency for capital
formation
- Financial support
- Medical support
- Source of employment
9. TYPES OF
INSURANCE
- Life insurance
- Health insurance
- Car insurance
- Education Insurance
- Home insurance
10. LIFE
INSURANCE
As the name suggests, life
insurance is insurance on your life.
You buy life insurance to make sure
your dependents are financially
secured in the event of your
untimely demise. Life insurance is
particularly important if you are the
sole breadwinner for your family or
if your family is heavily reliant on
your income. Under life insurance,
the policyholder’s family is
financially compensated in case the
policyholder expires during the
term of the policy.
11. HEALTH
INSURANCE
Health insurance is bought to
cover medical costs for expensive
treatments. Different types of
health insurance policies cover an
array of diseases and ailments. You
can buy a generic health insurance
policy as well as policies for
specific diseases. The premium
paid towards a health insurance
policy usually covers treatment,
hospitalization and medication
costs.
12. CAR
INSURANCE
In today’s world, a car insurance
is an important policy for
every car owner. This insurance
protects you against any
untoward incident like accidents.
Some policies also compensate
for 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.
13. EDUCATION
INSURANCE
The child education insurance is akin
to a life insurance policy which has
been specially designed as a saving
tool. An education insurance can be a
great way to provide a lump sum
amount of money when your child
reaches the age for higher education
and gains entry into college (18 years
and above). This fund can then be
used to pay for your child’s higher
education expenses. Under this
insurance, the child is the life assured
or the recipient of the funds, while the
parent/legal guardian is the owner of
the policy.
14. HOME
INSURANCE
We all dreaming of owning
our own homes. Home
insurance can help
with covering loss or
damage caused to your
home due to accidents like
fire and other natural
calamities or perils. Home
insurance covers other
instances like lightning,
earthquakes etc.
15. TAX BENEFITS ON INSURANCE
• Apart from the safety and security benefits of buying
insurance, there are also the income tax benefits that you can
avail.
• Life insurance premium of up to ₹1.5 lakh can be claimed as a
tax-saving deduction under Section 80C.
• Medical insurance premium of up to ₹25,000 for yourself and
your family and ₹25,000 for your parents can be claimed as a
tax-saving deduction under Section 80D.
• These claims have to be made at the time of e-filing income
tax returns.
16. CONCLUSION
Insurance is a large investment and you will most likely purchase multiple
policies throughout your lifetime. It is essential that you know what each
type of insurance covers and how it works so you can make the best
decision about what to buy. Do not base your decision on just what is
cheapest, but look at what it provides.
Take the time to shop around and find the right insurance for your
situation. People often say they cannot afford insurance, but the reality is
that they cannot afford not to have it. It can save them from thousands or
more dollars in unplanned expenses when unexpected situations arise. You
do not want to waste your money on policies that do not meet your needs,
but the right insurance policy can protect you and your family from
unforeseen disasters.
