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Features
Ref. No. KLI/22-23/E-BB/492
Ever wondered what insurance really is? In simple terms, insurance is a legal agreement between an individual (policyholder) and an insurance company (insurer). The policyholder pays regular premiums, and in return, the insurer provides financial protection against specific losses. These can be an accident, illness, or damage to your home. Insurance helps cover the financial burden, so you do not have to pay everything out of pocket. This blog will help you further understand what is insurance meaning and types, and why it is an essential part of life.
To answer the common question, “what is insurance?” we first need to understand the literal insurance definition. It is a contract between you and an insurance company. Insurance refers to an assurance against unexpected financial loss. This means if you suffer a loss due to an unfortunate event, your insurer can compensate you for it.
For example, imagine you are driving to work and meet with an accident that damages your car. In this case, your insurer can cover the repair costs. However, the insurer will not pay for the regular car maintenance issues like a worn-out tire.
Legally, insurance is a contract where the insurer agrees to compensate you (the insured) for financial losses caused by unforeseen events. The regular amount that you will pay is called a premium, and the maximum coverage provided by the insurer is called the sum assured or sum insured.
Life is unpredictable, and no one knows when an accident, illness, or emergency might strike. Without insurance, you might have to spend your entire savings to cover an unexpected expense. But with insurance, you get financial support when you need it the most to protect you and your family during tough times. Here are some reasons that explain why insurance is necessary:
Having insurance makes sure that you and your family remain financially stable even in uncertain situations. It can cover your everyday expenses and urgent costs during difficult times.
Some insurance plans also work as investment tools, helping you save for future goals like your child’s education or retirement. They offer both protection and financial growth.
Insurance acts as a financial safety net for your loved ones if something happens to you. It can also provide funds for business investments, property purchases, or other long-term financial plans.
Insurance works on a very simple basis. Every policyholder pays a fixed amount (called a premium) to get the insurance benefits and cover. Insurance providers use this pool of money collected from you and all the other policyholders and invest in multiple options to make sure the money grows. This money bank is used to pay out insurance benefits if any policyholder makes a claim.
Depending on the type of policy chosen, you may receive the sum invested (i.e., premium) and maturity benefits (applicable in endowment plans), or in most cases, these policies last for a certain time period (called the term of the policy), and you can only claim the losses within the pre-decided time period.
Depending on the need, various types of insurance plans are available. Life insurance, health insurance, vehicle insurance, property insurance, and business insurance are broad categories. Take a look at the sub-categories:
The main objective of buying an insurance plan is to be financially prepared if any unfortunate event happens. However, other benefits can be availed from an insurance plan:
Insurance can help you financially protect yourself and your loved ones from unexpected events such as accidents, illness, disability, or death. For example, if you have health insurance and get into an accident, your insurance will help cover the costs of your medical care. It can prevent you from going into debt or depleting your savings.
Some insurance plans, such as health insurance, can give you access to better care than you could afford. It is because insurance companies often negotiate lower rates with doctors and hospitals.
Insurance plans can help you manage and mitigate risks by spreading the financial impact of losses. For instance, family members might face a financial crisis in case of policyholders’ demise. Fortunately, a term life insurance plan would bear the loss, significantly reducing the financial burden on nominees.
In India, premiums paid for certain insurance types, such as health and life insurance, are tax-deductible. It helps the policyholder to save money that can be used for other purposes.
Many types of insurance, such as auto and business insurance, are mandatory by law, ensuring legal compliance. This protects you and business organizations from legal consequences. Insurance contributes to economic stability by encouraging recovery from disasters and minimizing the impact of large-scale events on you and the economy.
Choosing the right life insurance policies ensures that you and your loved ones are financially protected at every stage of life. If you are looking for life insurance, here are some must-have policies:
You, by now, know what is insurance, but were you aware that it can also help you save on your taxes? Great, right? Here is how:
You can claim a tax deduction of up to ₹1.5 lakh on life insurance premiums under Section 80C. Health insurance premiums are also tax-deductible under Section 80D, up to ₹25,000 for yourself and your family, plus an extra ₹25,000 for your parents (₹50,000 if they are senior citizens).
The payouts from a life insurance policy, including the maturity amount and death benefit, are tax-free under Section 10(10D). However, the maturity amount remains tax-free only if your annual premium is not more than 10% of the sum assured.
Insurance is a vital tool for managing risks and uncertainties in our lives. The diverse types of insurance cater to different needs, providing a range of coverage options. Insurance benefits extend beyond financial security, offering peace of mind and legal compliance and contributing to overall economic stability. Understanding the various insurance types and their advantages empowers you and businesses to make informed decisions about risk management strategies.
1
Insurance provides financial protection in case of accidents, illnesses, or emergencies. It ensures that you and your family do not have to struggle financially during tough times.
2
A premium is the amount you pay to an insurance company for your insurance coverage. It can be paid monthly, quarterly, or yearly.
3
A deductible is the amount you must pay out of pocket before your insurance starts covering expenses. Higher deductibles usually mean lower premiums.
4
You can choose the right insurance policy by assessing needs, comparing policies, analyzing the company’s reputation, evaluating premiums and deductibles, and considering CSR (Claim Settlement Ratio).
5
Term insurance provides coverage for a limited period with no cash value, whereas whole life insurance provides lifelong coverage and builds cash value.
6
Insurance cover is your financial safety net. It provides financial protection to you, or your family in case of adversities, such as death, accident, illness, or disability. In case of health insurance cashless treatments, pre and post-hospitalization, medical bills, diagnostic tests, and more are covered.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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