Insurance is a means by which the risk of loss can be shifted to another party (insurer or insurer) by paying some fee (called premium). The party whose risk is passed on to the insured is called the ‘insured’.

How many types of insurance are there?

Generally there are two types of insurance, which are as follows –

• Life Insurance

• General Insurance

What is Life Insurance?

Life insurance means that if the person purchasing the insurance policy dies or becomes a victim of temporary disability, then his family receives a fixed compensation from the insurance company.

Since, if a person who earns money in a family dies untimely, then that house completely falls apart and it is quite difficult for them to meet the expenses. In such a situation, it becomes very important to take life insurance to protect your family from any such future crisis and to improve the future of your children.

What is General Insurance?

General Insurance is one of the types of insurance policy. A general insurance policy provides coverage in the form of sum assured against financial losses other than death of the policyholder. A general insurance policy includes various types of insurance policies like- car, bike, home, health insurance policy etc. If due to any reason any of these suffer any loss, financial compensation is paid to the insured by the insurance company

Types of Insurance

Why is life insurance necessary and its benefits?

Ashish explains that life insurance is a contract between an insurance company and a policyholder, in which the insurance company promises to pay a specified amount to the beneficiary after the death of the policyholder. The basic purpose of a life insurance policy is to provide financial security to the family and loved ones of the policyholder. There are many plans in the life insurance market that provide life insurance cover at a low premium and also benefit from income tax.

And it helps you a lot in avoiding financial problems in any difficult situation. Through this, you can definitely provide financial security to your family or resources. Apart from this, it can also prove to be helpful for you in saving your tax and easily availing loan facilities from banks.

Benefits of health insurance

Health insurance is a contract between an insurance company and the policyholder in which the insurance company is obligated to provide financial compensation to the policyholder in the event of a health-related emergency. The basic purpose of health insurance is to cover the medical expenses of the policyholder. This coverage is subject to a fixed sum assured and does not provide life cover. Health insurance provides cashless treatment and covers critical illnesses. This does not affect the savings of the policyholder. Whereas, the policyholder can also get benefit in income tax.

Insurance Provides Several Important Benefits, Including:

• Financial protection: Insurance provides a safety net by covering unexpected costs such as medical bills, car repairs, or property damage. This prevents individuals and businesses from facing severe financial difficulty if an accident or disaster occurs.

• Risk Management: Insurance allows individuals and businesses to transfer risk to an insurer. This means that policyholders pay a premium to share the risk with the insurer, rather than bearing the entire financial burden of a loss.

• Peace of Mind: Knowing that you have insurance coverage can provide peace of mind. It reduces worry and stress by assuring you that you have financial support in case of emergencies or unexpected events.

• Legal requirements: In many cases, insurance is legally required. For example, auto insurance is mandatory in most places to protect other drivers and pedestrians in the event of crashes. Health insurance also may be required by law.

• Investments and savings: Some insurance policies, such as life insurance and annuities, can serve as long-term investment and savings tools. They may offer cash value or retirement income benefits in addition to their security features.

• Business Continuity: Business insurance, including property and liability coverage, helps companies continue operations after unexpected events like fires, natural disasters or lawsuits. It protects a business’s assets and reputation.

• Economic Stability: Insurance plays a crucial role in stabilizing the economy. This helps spread the financial impact of large-scale disasters to the wider population, preventing financial crises.

• Social welfare: Government-provided insurance programs, such as Social Security and Medicare, promote the well-being of society’s most vulnerable members, including retirees and people with health problems.

• Assistance to loved ones: Life insurance can provide financial assistance to beneficiaries after the death of the policyholder. It can help cover funeral expenses, mortgage payments, and other living expenses.

• Encourages responsible behavior: Insurance policies often come with deductibles and premiums depending on risk factors. It encourages individuals and businesses to take steps to reduce risk, such as driving safely or implementing security measures.

• Lender Requirement: Many lenders require insurance when they provide a loan or mortgage. This ensures that the collateral (such as a home or car) is secure, reducing the lender’s risk. 

Overall, insurance is a vital financial tool that helps individuals, families and businesses manage risks and protect their financial well-being, providing stability and security in an uncertain world.