What is Insurance? Types & Important Terms to Know
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Insurance is a legal agreement between the insurance company and the policyholder which states that the former is liable to provide financial assistance in case the latter meets with any kind of uncertainties. In order to get this benefit, the policyholder pays a certain amount to the insurer to keep their plan active and get the insurance benefits. Now, to cater to the different insurance needs of policyholders, there are a number of insurance companies in India that sell a variety of insurance products. So, let us understand what insurance is, its types, and other features.
What is Insurance & its Types?
As already stated, insurance offers protection to you and your loved ones against uncertainties like health emergencies, road accidents, and others. Now, let us understand the different types of insurance:
- Life Insurance: A life insurance plan provides life insurance coverage to the beneficiaries of the policyholder, in case the policyholder meets an unfortunate death.
- Health Insurance: Health insurance is a legal agreement between the policyholder and the insurer wherein the latter agrees to pay a certain amount in case the policyholder meets any health emergency.
- Motor Insurance: Motor insurance is broadly of two types, car insurance, and bike insurance which provides protection to your vehicle in case it is damaged, lost, or stolen.
- Travel Insurance: In case any uncertainty arises during your trip, then with a travel insurance plan, you can get protection against the same. Be it flight delays, trip cancellation, loss of passport, or others, travel insurance covers it all.
Thus, depending on your preference and requirement, you can easily plan to buy a desired type of insurance plan.
Important Terms To Know in Insurance
There are different terms that you should know about in insurance such as the following:
- Insured: Insured refers to the policyholder or the one who has bought the insurance policy. Typically, speaking, the insured is the owner of the insurance policy but they may not be the life insured. For instance, if you buy a life insurance policy for your parents, then you are the policyholder and your parents are the life insured.
- Insurer: The insurer is the insurance company from which the policyholder has bought the insurance plan.
- Policy Term: Policy term refers to the duration during which you need to pay the premium amount.
- Policy Tenure: Policy tenure is different from policy term and is the duration during which the insurance company provides the coverage.
- Premium: Premium refers to the amount that is required to keep the insurance policy active. There can be different premium payment terms such as regular premium payment, limited premium payment, and single premium payment.
- Insurance Claims: An insurance claim is basically the process through which you request the insurance company to provide you with financial compensation as specified under your insurance policy.
- Claim Settlement Ratio: The claim settlement ratio or CSR is the ratio between the number of claims settled to the number of claims raised by the insurance company. It is important to understand that the higher the claim settlement ratio, the more beneficial it will be for policyholders in getting their claims settled. For instance, it is advisable to choose an insurance company that has a claim settlement ratio of 98% as compared to one which has an 85%.
- Sum Assured: Sum assured is the amount that will be paid out to you in case of any life or health uncertainty. The sum assured must be determined by the policyholder when they are buying the insurance plan.
- Deductibles: In order to pay lesser premiums, the insurance company asks the policyholder to pay a certain amount which is called the deductibles.
- Nominee: The nominee is basically the heir or person nominated by the policyholder who is supposed to receive the benefits in case the policyholder meets an unfortunate event.
- Riders: In order to enhance the insurance policy benefits, you can include riders in the plan. For instance, you can add maternity riders to a health insurance plan. Adding a rider is optional and depends on the choice of the policyholder.
In addition to the terms mentioned above, there are several more terms that you should know about, and the usage of which varies depending on the type of insurance product you choose to buy.
Take Away
Thus, with different insurance plans like health insurance, life insurance, and others, you can protect your savings from draining out in case of emergencies. You can also explore a number of insurance plans on the InsuranceDekho website.
Also read: What are Guaranteed Return Plans?
