Insurance Basics That Every Person Should Know

Hello folks, you must be looking for a piece of complete insurance information, right? There are various mediums through which you may have acquired the information about insurance and its type, but that could be in parts or that information might not be sufficient. Therefore, we have written a dedicated blog to feed your curiosity about insurance. In this blog, we have covered what is insurance, types of insurance, principles of insurance, the difference between life insurance and general insurance, types of life insurance, and types of general insurance, etc. So, let’s begin with the meaning of insurance.

What is Insurance?

A policy or a contract by which an organization or the state promises to provide a guarantee of compensation for specified loss, damage, illness, or death reciprocally for payment of a specified premium is called insurance.

Types of insurance

There are two main sorts of insurance,

1. Life assurance.

2. General insurance (non-life insurance).

The difference between Life insurance and General insurance

Life insurance covers the life risk of the person insured whereas general or non-life insurance covers anything that isn't covered under life assurance and which generally is for a vehicle, house, health, etc. Life insurance may be a sort of investment whereas general insurance is merely a contract of indemnity. Life insurance can be long-term or short whereas general insurance is for the short term. Say for two months, one year, or three years. The life insurance premium has got to be paid over the year however in general insurance premium has got to be paid as a full amount. A life insurance amount is paid in one of the two circumstances i.e. On the occurrence of the event or maturity whereas within the general insurance losses are paid back on the occurrence of uncertain events only. In life insurance, the insurable must be present at the time of contract whereas in general insurance the insurable must be present at the time of the contract as well as at the time of loss. Life insurance can be done for any value based on the premium policy whereas in general insurance the amount payable under the insurance contract is the actual loss suffered. So the maximum amount you get is the loss that happened.

Types of life insurance

Term insurance

It is the pure insurance form. It pays your nominee the sum insured, in case of your demise within the policy term. It doesn't have any sum assured or maturity amount. The premium is extremely low.

Endowment plan

These plans are insurance and investment plan. A particular portion of the premium is purchased for the protection of life and the rest amount is invested in low risk. So at the time of maturity, the insured gets a predefined amount.

Unit Linked insurance plans (ULIPs)

These are newly introduced plans a few decades ago. ULIPs offer life protection also provides the opportunity for capital appreciation by investing in various funds of varying degree of risks.

Types of general insurance or non-life insurance

Health insurance

A general insurance plan is an indemnity plan that pays for hospitalization expenses up to the sum insured. You can avail a standalone health policy or a family floater plan that gives coverage to all members of your family.

Motor insurance

Motor insurance covers your vehicle against accidental damage, theft, vandalism, etc. This form of insurance comes in two forms i.e., i.Comprehensive motor insurance: - Covers 360 degrees of your car or vehicle. ii.Third-party motor insurance: - Gives you protection from third-party damages that happen to your vehicle.

Home insurance

Home policy protects your home and its belongings from the damage suffered because of man-made or natural events or disasters. Some home insurance policies also provide coverage for temporary living expenses just in case you're living on rent because of your home undergoing renovation.

Travel policy

A travel insurance policy protects you against losses suffered due to injury, baggage loss, delays in flights, and trips cancellation while you are traveling abroad. In some cases, if you got hospitalized while traveling, travel insurance can also offer cashless hospitalization.

Principles of insurance

1. The principle of utmost good faith: - This principle states that an insurance contract must be signed by both the parties i.e. By an insurer and insured in absolute straightness or belief or trust. They promise to not hide anything from one another.

2. The principle of interest: - The principle of interest states that the person who is getting insured must have an insurable interest within the object of insurance. This means that you can't get the policy for the neighbor's car or the neighbor's kid. You shall have the interest within the property or the person where you're taking the insurance plan.

3. The principle of indemnity: - According to the principle of indemnity an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. This states that the insurer is liable to provide compensation for the loss that happened.

4. Principle of contribution: - This principle applies to all or any contracts of indemnity. If the insured has more than one policy for the same material, according to this principle the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim protection from other insurers.

5. Principle of subrogation: - This principle states that when the insured is compensated for the losses because of damage to his/her insured property then the ownership rights of such property shift to the insurer.

6. The principle of loss minimization: - This principle states that the insured should try his best to attenuate the loss of his insured property just in case of certain events such as a fire breakout or blast etc. The insured shall call the police or the fire brigade and he/she should put all his/her efforts to attenuate the loss to the merchandise or the property.

7. Principle of Causa Proxima or nearest cause: - Causa Proxima principal cares about how the loss or damage happened to the insured party and whether it's a result of an insured risk. It is to know the cause behind the loss and Is he/she an insured peril or not?

I hope have got a basic understanding of what is insurance, its type, and the principles of insurance. If you want to become proficient in the field of insurance stay tuned to our website. We keep uploading blogs related to very important insurance topics on our website.