What Is Insurance? Different Types of Insurance

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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:

  1. Life Insurance
  2. 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.

Get List of All Insurance Companies In India.

Learn About Other Financial Terminologies:

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