Wednesday, March 19, 2014

Why Insurance required?

Significance of Insurance

Many of us think that taking insurance is a cost and utter waste. But, remember, this cost is very least when you compare the benefits that accrue to you in the event of an unfortunate event .

Moreover, the money spent in insurance contracts  can be a good savings -cum- investment for your life and the family.This arrangement takes care of the welfare of your family.You can make a choice of good plans to cover the basic risks of your living like Life, Health, Home, Vehicles,etc..

For your business or profession, go for the policies that will insure the risks associated with your products, fixtures and fittings like plant and machinery,etc..

What is Insurance?

Risks involved in our life are many. Death is the unbearable and irreparable of all risk.That too  untimely death leaves shock and vacuum in a family. To take care of such unfortunate death or any sort of risk ,   a mechanism is in place to transfer the risk from one place or person to another.

When risks  are managed by self  without transfer to another, they are " Retained Risks"  and they are called as " Transferred Risks " when passed on to another for a consideration or price which is popularly known as "Premium".

As the cost is heavy, an individual cannot bear the risk of others. However, an institution like Cooperative or Firm or Corporate concern can manage them . Cooperative Society for Death relief is an example for managing the expenses arising from death of a member. This is very popular among fishermen folks in Kerala, whose life is at risk when venturing out into the sea.

Types of Insurance

There are basically two types of insurance: life and non-life insurance.

Life type is for compensating the dependants in the event of death of the policy holder. This has two sub categories as 1) pure insurance or term insurance where premium rate will be lower but no returns or refunds made if the person survives after the policy period 2) endowment type ,where death and maturity benefits are combined ,which naturally comes at a higher premium.

Non life products cover the risks like Accident, Marine, Health, Goods, Agricultural crops,Cash-in-transit, etc. The popular Mediclaim policy belongs to Health insurance category.

Apart from these, third type exists as Reinsurance which insures risks like Satellite, Spacecraft, etc...involving huge amounts and also when the sum insured exceeds a threshold limit in a case.

The benefits of insurance will be made fully under all policies  for Life insurance whereas only one insurance amount will be settled in the case of Non-life insurance type. Another difference is the period of cover : one year for non-life  policy renewable every year and longer period for life insurance .

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