Basic idea about “what is insurance” is present in every mind. But, what the actual thing is it ?
So , here i am going to explain some basic information about the topic and you will be surprise, how easy is the answer of this question that what is insurance.
Insurance is considered as a tool of financial protection. Yes, It provides a financial back up in case of any loss. Loss may be of life, money, property, unexpected expense or anything else which can disturb the normal life of a person. You can not use insurance to make profits.
Insurance means transfer of our risk on the insurance company. But, the insurance company charges some money from us to provide us cover against that risk. Nothing is free in the world, we have to pay for each and everything.
We can say insurance is a form of risk transfer from a customer to a company on a decided cost.
So, insurance becomes a contract. In this contract two parties make a consideration that one will provide financial cover to another for a particular cost.
Both parties as a part of contract have to perform their duty.
First Duty of a customer is to pay costs which we call premiums at time. In case of a loss of customer the duty of the company to keep its promise to provide cover.
Now a question arises how insurance works ?
Insurance works on a simple concept of loss sharing.
In insurance if there is a loss of someone then the loss is shared by many people exposed to the same type of risk.
We can say that loss of few customers is shared by many customers of that company.
I know what you are thinking now.
Yes, a company having a large customer base has more capacity to pay claims.
More customers means more premium and it means more money to pay in case some claims arise.
Insurance concept was never linked to savings. But in India we are the people of savings. We always save for difficult time as whole world is facing now lock-down due to COVID19
Insurance concept was never discovered in India. it was introduced by foreign businesses and traders. So, it was never easy for us to understand the concept and benefits of insurance.
This may be the one reason that we never showed our interest in insurance being an Indian mind set.
In India “insurance is never bought but sold”
But in India those insurance policies are sold which comes with a combination of saving elements and risk cover in a policy. Saving concept and risk cover concept combined in the same policy makes them little costly. But, we prefer it over only risk cover(term) policies.
We can further categorize insurance as:
Many more types and will explain them in my next articles. Hope every reader got actual idea about what is insurance.