Answer:
Insurance:
An arrangement by
which a company or the state undertakes to provide a guarantee of compensation
for specified loss, damage, illness, or death in return for payment of a
specified premium.
Risk-transfer
mechanism that ensures full or partial financial compensation for the loss or
damage caused by event(s) beyond the control of the insured party. Under an
insurance contract, a party (the insurer) indemnifies the other party (the
insured) against a specified amount of loss, occurring from specified
eventualities within a specified period, provided a fee called premium is
paid.
Importance of
Insurance:
There
are some points of importance of insurance.
1. Provide safety and
security:
Insurance provide
financial support and reduce uncertainties in business and human life. It
provides safety and security against particular event. There is always a fear
of sudden loss. Insurance provides a cover against any sudden loss. For
example, in case of life insurance financial assistance is provided to the
family of the insured on his death. In case of other insurance security is
provided against the loss due to fire, marine, accidents etc.
2. Generates financial
resources:
Insurance generate
funds by collecting premium. These funds are invested in government securities
and stock. These funds are gainfully employed in industrial development of a
country for generating more funds and utilized for the economic development of
the country. Employment opportunities are increased by big investments leading
to capital formation.
3. Life insurance encourages
savings:
Insurance does not
only protect against risks and uncertainties, but also provides an investment
channel too. Life insurance enables systematic savings due to payment of
regular premium. Life insurance provides a mode of investment. It develops a
habit of saving money by paying premium. The insured get the lump sum amount at
the maturity of the contract. Thus, life insurance encourages savings.
4. Promotes economic growth:
Insurance
generates significant impact on the economy by mobilizing domestic savings.
Insurance turn accumulated capital into productive investments. Insurance
enables to mitigate loss, financial stability and promotes trade and commerce
activities those results into economic growth and development. Thus, insurance
plays a crucial role in sustainable growth of an economy.
5. Medical support:
A medical
insurance considered essential in managing risk in health. Anyone can be a
victim of critical illness unexpectedly. And rising medical expense is of great
concern. Medical Insurance is one of the insurance policies that cater for
different type of health risks. The insured gets a medical support in case of
medical insurance policy.
6. Spreading of risk:
Insurance
facilitates spreading of risk from the insured to the insurer. The basic
principle of insurance is to spread risk among a large number of people. A
large number of persons get insurance policies and pay premium to the insurer.
Whenever a loss occurs, it is compensated out of funds of the insurer.
7. Source of collecting
funds:
Large
funds are collected by the way of premium. These funds are utilized in the
industrial development of a country, which accelerates the economic growth.
Employment opportunities are increased by such big investments. Thus, insurance
has become an important source of capital formation.
Types
of Insurance Policies:
1. Gap
insurance
Guaranteed
Auto Protection (GAP) insurance is also known as GAPS and
was established in North American financial industry. GAP
insurance is the difference between the actual cash value of a vehicle and
the balance still owed on the financing (car loan, lease, etc.).
2.
Health
insurance
Health insurance is a type
of insurance coverage that covers the cost of an insured
individual's medical and surgical expenses. Depending on the type
of health insurance coverage, either the insured pays costs
out-of-pocket and is then reimbursed, or the insurer makes payments directly to
the provider.
3.
Income protection insurance
Income Protection Insurance (IPI) is
an insurance policy, available principally in Australia, Ireland, New
Zealand, South Africa, and the United Kingdom, paying benefits to policyholders
who are incapacitated and hence unable to work due to illness or accident.
4. Casualty insurance
Casualty insurance is a problematically defined
term, which broadly encompasses insurance not directly concerned with
life insurance, health insurance, or property insurance. It is mainly
liability coverage of an individual or organization for negligent acts or
omissions.
5. Life insurance
Insurance that pays out a sum of money either on the
death of the insured person or after a set period.
6. Burial insurance
“Burial insurance” usually refers to a whole
life insurance policy with a death benefit of from $5,000 to $25,000.
As its nickname implies, people buy this type of policy to provide money for
funeral and burial costs for themselves and/or family members.
7. Property insurance
Property insurance is a policy that provides
financial reimbursement to the owner or renter of a structure and its contents,
in the event of damage or theft. Property insurance can include homeowner’s
insurance, renter’s insurance, flood insurance and
earthquake insurance.
8. Liability insurance
Liability
insurance is a part of the general insurance system of risk
financing to protect the purchaser (the "insured") from the risks
of liabilities imposed by lawsuits and similar claims. It protects
the insured in the event he or she is sued for claims that come
within the coverage of the insurance policy.
9. Credit insurance
Credit insurance is a type of
life insurance policy purchased by a borrower that pays off one or
more existing debts in the event of a death, disability, or in rare cases,
unemployment.
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