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| Importance, Types and Benefits Of Insurance |
The risk of death, incapacity, or damage surrounds an individual's life and possessions. These dangers might lead to financial losses. Insurance is a smart approach to shift these risks to a third party.
What is Insurance?
The insurance firm (insurer) and the individual enter into a legal arrangement known as insurance (insured). In this case, the insurance company guarantees to compensate the insured for any losses incurred as a result of the covered contingency occurring. The contingency is the occurrence that results in a loss. It might be the policyholder's death or the property being damaged or destroyed. It's referred to as a contingency since the outcome of the occurrence is unclear. In exchange for the insurer's commitment, the insured pays a premium.
How does insurance work?
The insurance policy is a legal contract between the insurer and the insured for the insurance. The insurance policy specifies the rules and situations under which the insurance company will pay the insured person or nominees the insurance sum. Insurance is a means of safeguarding yourself and your loved ones from financial ruin. In general, a large insurance policy has a lower premium in terms of money paid. Because very few insured people actually claim the insurance, the insurance firm bears the risk of offering a high level of coverage for a low cost. This is why you may acquire insurance for a large sum of money at a cheap cost. 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.
What are the types of insurance available?
Insurance in India can be broadly divided into three categories:
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.
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.
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.
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. You can estimate the amount of money that will go into funding your children’s higher education using Education Planning Calculator.
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.
What are the 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.
Conclusion
Be it life insurance, health insurance or general insurance, you can buy an insurance policy offline as well as online. Just like there are insurance agents who will help you buy a policy, there are websites as well that you can buy a policy from. Ensure that you have done your research before choosing and investing in an insurance policy.
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