Introduction
If you as a retail investor or business insurance entrepreneur, want to foray into insurance, you might have to comprehend the basics. You must have a conceptual understanding of what insurance is all about. You must have an overall understanding of how different insurance policies work in favor of you or your company.
You must understand how claim amounts are processed and above all you must know the overall benefits you get from taking comprehensive insurance policies.
Here we go with the Insurance Basics 101 and this shall be your online guide covering the overall basics of the insurance industry on the whole.
Insurance- Meaning and Conceptualization Explained
Insurance is a legal contract between the insurer and the insured. By the term ‘insurer’, we mean the insurance company. By the term ‘insured’, we mean the person who takes an insurance policy with the company.
The insurance contract comprises terms and conditions stating how the company would process insurance policies and how are the members supposed to pay for the insurance policies. The contract also cites other terms, conditions, and regulatory compliances that are to be followed between both the parties- the insurer and the insured.
Specific terms on how an insurance member pays insurance premiums in lieu of the policies the member has taken remain a part of the contractual deed or document. The deed also states how a member can exit from the policy.
In a nutshell, this is the policy document that states A to Zee info on how to activate your policy with the company until you exit from the firm and avail your policy redemption amount seamlessly.
Key Terms that are Covered on the Insurance Deed
These are the key terms that are cited on an insurance deed or policy document:
Premium
Premium amount is the amount of money that a member pays to the insurance company. This can be a sum that covers the policy assurance money in lieu of life insurance, medical insurance, or a home refurbishment policy that stands chosen. You can levy premium amounts monthly, quarterly, half-yearly, or annually.
Deductible
This is the amount of money you must pay to the insurance company even before your policy kick-starts. Deductibles are collected as processing fees or administrative fees for activating your policy with the company.
Coverage Limits
The coverage limit is the sum of money the insurer would cover for losses incurred by the insurance member in lieu of claim forms submitted by the insurance member.
Suppose, your insurance company covers 60% of fire accident losses erupting at your factory go down, and you submit a claim form citing liability damages as $10,000, then the insurance company pays you 60% of 10,000 which is $6000 as fire-damage claims.
Exclusions
Exclusions refer to specific items or limits that are not covered by the insurance company.
What are the Different Types of Insurance Policies?
Here are different types of insurance policies that you must know of:
Medical Insurance
Medical insurance or a health insurance policy is a type of policy that takes care of your hospitalization bills, pre-operative expenses, and post-operative expenses at hospitals, daycare centers, or diagnostic centers. When you purchase a comprehensive medical insurance policy covers the overall medical expenses for you or your family members.
Auto Insurance
Auto insurance covers claims or damages submitted in lieu of accidents arising from your cars, limousines, or other types of automobile vehicles. You can also choose auto insurance that covers damages against theft of vehicles.
Home Owner’s Insurance
A homeowner’s policy is a type of policy that covers damages arising to a home. This can be in terms of repairs or refurbishments done to commercial or residential properties on the whole. Wall repainting, ceiling replacement, or other home decor arrangements cover a part of the homeowner’s insurance.
Life Insurance Policy
A life insurance policy is a kind of policy that safeguards oneself from the calamities of life and supports your family members even in case of your untimely demise.
A life insurance can be a term policy for 10 or 15 years. Here, the sum assurance amount is redeemed under your name in case you are alive during this point in time.
However, in the event of your death, the policy amount is given away to your family members who may need the money post your demise.
Disability Insurance
Disability insurance is a type of insurance wherein you get an income replacement in case you have a type of illness or replacement injury. You may be eligible to cover your expenses for a wheelchair take nursing services from a palliative health care center or post an accidental catastrophe.
How Insurance Works?
These are the entailed set of steps on how an insurance policy works:
Risk Assessment
The insurance firm assesses the basic risk profile of the investor and asks for how much policy amount would the member be eligible to apply for. The insurance advisor then advises what kind of policies can be chosen by a member. The policy documents are then resourced in the name of the policy member and the policy gets activated under the member’s name.
Policy Issuance
The policy issuance refers to the giveaway of the policy document by the insurance company to the member who opts for a specified policy. The terms and conditions that apply to the policy are mentioned here.
Here, you find details about:
a. premium amounts to be levied
b. dates by which these premiums are to be levied
c. late payment fees as applicable if premiums are delayed or skipped by the insurance member
d. policy coverage amount
e. exclusions if any
f. employee discounts if any
g. other protection insurance riders or benefits that are add-ons to the main policy
h. overall terms and conditions to exit the policy
Claim Process
This is the last and final step that gets involved in the insurance process. This is the claim we are talking about.
In the eventuality of a contingency for which the policy is taken, a claim form must be submitted to the insurance firm. Here, the agent or the insurance member must also submit relevant proofs in lieu of the situation for which the claims are made.
The insurance firm matches if the proofs and the amount stated on the claim forms are correct and then disburses the coverage amount as applicable on the policy that stands chosen.
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Why do You Need Insurance?
These are the following reasons as to why you need insurance. Let us have a run-down into the same:
Financial Security
Insurance provides a protective layer that covers unexpected financial contingencies that you may contemplate in life.
For instance, comprehensive medical insurance allows you cashless hospitalization and covers hospital bills worth tens of thousands of dollars.
Similarly, a home insurance policy provides coverage for home refurbishment expenses which you might otherwise have to shell out from your pocket.
Or, a life insurance policy distributes the coverage proceeds to your family members in the event of your death. Therefore, insurance is a kind of contingent asset that protects you from any form of disaster or calamities you have on hand. Knowing Insurance 101 helps you have an overall understanding of how the industry works for the insured and the consumer.
Legal Requirement
Taking insurance like say automobile insurance is a legal requirement in most countries of the world. So, anyone who owns a car, limousine, or truck has to mandatorily apply for auto insurance in lieu of the same.
Therefore legal requirements allow members to mandatorily apply for a particular type of insurance.
Freedom from Stress or Tension
When you apply for insurance, you get a protective layer from unexpected situations or financial contingencies. It can be a medical insurance that fits cashless hospitalization for you or your family members. Otherwise, it can be a fire insurance policy that protects your buildings against fire damage.
Or, it can be a home burglary insurance policy you take to cover for damages in case your house gets burgled. Therefore, when you take a form of insurance that covers the contingency situation you anticipate or foresee in the future, you can lead a stress-free or tension-free life ahead of you.
Suggested Reads: Is insurance an asset or a liability- let us find out
Tips You Follow While Choosing Insurance Policies
These are the strategies you must ideally follow while choosing insurance policies. Helping you through with a run-down into the same:
Comparison of Quotes
Whether you do online shopping between multiple insurance providers or you walk down to retail outlets that sell insurance policies, a comparison of quotes is something that you must necessarily do.
You must look at what the policy covers for you on the whole and what add-ons are included as part of additional insurance benefits or riders. This way, you get a fair idea as to whether the policy is worth investing in.
By comparing quotes from different life insurance policies, you also understand if you would find an insurance policy that aligns with your specific needs or requirements.
Reading the Fine Print
You must take time to read through the policy document’s terms and conditions thoroughly. This way, you would be in a position to further understand if the policy suits your independent requirements or not.
The Bottom Line
Insurance policies are quite complex to learn or understand. You must take some time to analyze how insurance policies work and how you can claim coverage amounts or how exclusions are calculated inside the insurance industry. Insurance products are subject to market risks. One must read the offer documents carefully before investing.
Frequently Asked Questions or FAQs
How insurance can help a policyholder?
Answer: Insurance helps a policyholder protect himself from financial risks like business losses, hospitalization, or other contingency scenarios you may foresee in the future.
How can you choose a policy that fits your needs?
Answer: You must understand what types of insurance or related products are there in the marketplace. You must also understand what type of coverage you need to protect yourself and your loved ones from calamities you might encounter. You can discuss your specific objectives or requirements with a financial or insurance advisor to make informed decisions.
