What Is Insurance? Different Types of Insurance
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Insurance
Insurance is a mechanism of collecting money from a larger group in small amounts called premium and compensating few people who are victims of losses and damages.
The concept of insurance involves paying a premium to the insurance company to provide cover on a certain risk.
Insurance is a risk transfer mechanism, wherein Insured (Person buying insurance) transfers the risk of the unexpected financial loss to Insurer (The Insurance Company).
Insurance is a contract of Indemnity, implying that insured cannot benefit from insurance.
In Insurance only assets with economic value can be Insured.
Types of Insurance
Insurance is divided in two types:
- Life Insurance
- Non-Life Insurance
There are different categories of Insurance:
- Life Insurance
- Provides benefits to nominee or legal heirs when the person who is insured dies.
- Health Insurance
- Pays for covered medical expenses and prescription medications.
- Property Insurance
- Pays benefit, if the insured’s property is damaged.
- Auto Insurance
- Pays benefit, if the insured’s auto/vehicle is damaged.
- Liability Insurance
- Provides protection in case of liability claims against the insured’s action.
- Disability Insurance
- Pays benefit, if a person is accidentally injured and unable to work.
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Hi, I’m Managing Director at Gurpreet Saluja Financial Services where I help my investors to invest in mutual funds and achieve their financial goals. I’m also a Value Investor and here I write about Personal Finance & Investing.
