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Insurance - Definition and Meaning 2

The document defines and explains insurance coverage. It discusses what insurance is, the key components of an insurance policy like premiums and deductibles, and the main functions and types of insurance including life, health, home, auto, travel, and other insurance. Insurance provides protection against financial losses and risk sharing among policyholders.

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28 views4 pages

Insurance - Definition and Meaning 2

The document defines and explains insurance coverage. It discusses what insurance is, the key components of an insurance policy like premiums and deductibles, and the main functions and types of insurance including life, health, home, auto, travel, and other insurance. Insurance provides protection against financial losses and risk sharing among policyholders.

Uploaded by

Екатерина
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Insurance – Definition and Meaning

Insurance coverage can be defined as a contract in the form of a policy.


This policy covers the monetary risks of an individual due to
unpredictable contingencies. The insured is the policyholder. The insurer
is the insurance-providing company/the insurance carrier/the underwriter.
They provide coverage and reimbursement to the policyholder.

The policyholder pays a certain amount called ‘premium’ to the insurance


company against which the latter provides insurance cover. The insurer
assures that it shall cover the policyholder’s losses subject to certain
terms and conditions. Premium payment decides the assured sum for
insurance coverage or ‘policy limit’.

What is Deductible? Why Pay Deductible if Premium is Paid?

You can pay lesser premiums and higher deductibles in an agreement


with the insurer.

Features of Insurance Coverage

Insurance coverage has the below mentioned essential features:

 It is a kind of risk management plan to use an insurance policy as a hedge


against an uncertain loss
 Insurance coverage does not mitigate the magnitude of loss one may face.
It only assures that the loss is shared and distributed among multiple
people
 Insurance coverage can be provided for medical expenses, vehicle damage,
property loss/damage, etc. depending on the type of insurance
 Premium, policy limit, and deductible are the main components of an
insurance coverage policy. The policy buyer should check them
thoroughly while buying an insurance policy

Functions of Insurance Coverage

An insurance policy performs various functions. However, some of these


are its fundamental functions, and the rest are additional ones. The basic
functions of insurance coverage are:

1. Provides Protection
Insurance coverage does reduce the impact of loss that one bears in
perilous situations. It provides monetary reimbursement during financial
crises. It not only protects the insured from financial woes but also helps
in checking mental stress arising out of it.

2. Provides Certainty

Insurance coverage provides a feeling of assurance to the policyholders.


The insured pays a small portion of the income for this certainty that will
help in the future. So, there is a certainty of handsome financial aid
against the premium. It will protect the policy buyer when met with
accidents, hazards, or any vulnerabilities.

3. Risk Sharing

The very manner in which insurance policy functions makes it a


cooperative scheme. An insurer would be unable to pay from one’s
capital. An insurance company pools in collective risks and premiums
because it covers a large number of risk-exposed people. The payout to
the one who claims insurance coverage is out of this fund. Thereby, all
policyholders share the risk of the one who actually suffered the loss.

4. Value of Risk

Insurance policy assesses the volume of risk and also anticipates the
various causes of it. It evaluates the amount for insurance coverage and
the premium payment amounts on a risk value basis. It safeguards against
unforeseen events and consequential loss.

Insurance policies mobilize domestic savings into providing financial


stability. It also directs towards loss mitigation due to damage or
destruction for the insured community.

Types of Insurance Coverage

Insurance policies can cover up medical expenses, vehicle damage, loss


in business or accidents while traveling, etc. Life Insurance and General
Insurance are the two major types of insurance coverage. General
Insurance can further be classified into sub-categories that clubs in
various types of policies. These are:
1. Life Insurance

One can avail the life insurance in order to protect the family due to
premature death or death during the tenure of the policy. It provides the
family with a lump sum when the insured person meets with an untimely
death. This helps the grieving family to battle with financial struggles that
may occur in absence of a breadwinner.

2. General Insurance

Non-life insurance policies count as general insurance policies that


include insurance coverages for home, auto, education, etc. as mentioned
below:

1. Health Insurance

You can buy health insurance for yourself or for your family that may
include your spouse, parents, siblings, and children. Some insurance
companies have tie-ups with hospitals. So here you can use your policy
number to avail of cashless services in-network hospitals. In other cases,
you can claim reimbursement for hospitalization and treatments. Do
check the coverage of the type of disease/illness/health issue. Also, verify
what type of costs are covered.

2. Education Insurance

Education insurance can also serve as an investment scheme. You pay


premiums by the time your child is 18 years of age or attains a certain age
as decided by the insurance policy. You can have a lump sum with
imposed regulations that you can use for a child’s educational purposes
and not any other. Use an education calculator to estimate the amount you
may need when the child grows up. Such calculators are often provided
by insurance companies or insurance offering sites. The parent/ foster
parent/legal guardian is the owner of the policy.

3. Home/Property Insurance

If man-made or natural calamities damage your valuable property then


this policy can cover the financial loss and provide monetary aid. Losses
due to theft, floods, or any other mishaps can be alleviated.
4. Motor/Auto/Vehicle Insurance

This is one of the mandatory policies in current times. First of all, it


protects your valuable asset against road accidents or any other damage
and covers the losses. Secondly, the traffic rules suggest you carry
insurance papers while driving.

5. Travel Insurance

You may have seen that you get an option to buy insurance for minimal
costs when booking a rail or air ticket. Alternatively, you can buy travel
insurance if you are a frequent flyer and especially if you travel
internationally. You can claim for baggage loss, trip cancellation, or
delay in flight.

Apart from the types of insurances discussed above, there are


miscellaneous insurance coverage policies for furniture, goods, machines,
etc. There are other types of insurance such as Fire Insurance (damage
due to fire), Marine Insurance (for cargo ships), Tenant Insurance,
Landlord’s Insurance, and so on. Group Medical Insurance Policies often
cover the employees of an organization if the latter has any.

Wrapping it up:

The benefit of having insurance is that it prevents burning a hole into


your pocket in unprecedented times. It gives you financial assistance for
your losses and damage. The basic function of all types of insurance
coverages is to provide damage control to the insured by bringing in a lot
of people who pay to cover their risks. The fund is further used for capital
formation through investment in the markets. This helps the insurance
companies to keep running and settle/adjust the claims of the insured
people. It also boosts the economy.

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