Insurance is the best way which helps to manage your risk. When a person buys insurance, he purchases protection against uncertain financial losses due to some unexpected happenings. if something bad happens to him then the insurance company is liable to pay him or someone to whom, he chose to pay.
When you will buy insurance from any insurance company then they will provide you, with an insurance policy of your name which is a written contract and assurance to pay in the case of bad happens to you.
Contents of this post
- What is the definition of Insurance?
- What are the benefits of Insurance?
- How does Insurance work?
- How does insurance cover your risk?
- Why is insurance so important?
- What are the types of Insurance?
- Why should I get Insurance?
- How are insurance benefits in Income tax?
- What are the types of Life Insurance Policies?
What is the definition of Insurance?
Insurance can be defined as a contract in the form of a financial protection policy. This policy covers the monetary risks of an individual due to unpredictable risks and happenings. The insured is the policyholder whereas the insurer is the insurance-providing company. The insurers provide financial coverage or reimbursement in the case of a bad happening with the insured person.
What are the benefits of Insurance?
There are many types of benefits you can see after getting insurance for example-
- Life Risk Cover.
- Death Benefits.
- Return on Investment.
- Tax Benefits.
- Financial security
- Security of child’s future
- Loan Options. and prevent loan burden
- Retirement Planning
- Health and Medical care
- Life Stage Planning.
- Assured Income Benefits.
How does Insurance work?
Insurance works well to cover many types of risks in your life’s journey
- As we know there is no idea of bad happening in our lives.
- Insurance is a way of protecting yourself and your family from a financial loss.
- Generally, the premium for a big insurance cover is much lesser in terms of money paid.
- The insurer and the insured get a legal contract for the insurance, which is called the insurance policy.
- The insurance policy has details about the conditions and circumstances under which the insurance company will pay out the insurance amount to either the insured person or the nominees.
- The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance.
- Any individual or company can seek insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company.
- The insurance company will evaluate the claim application to make a decision.
- Generally, insurance companies refuse to provide insurance to high-risk applicants.
How does insurance cover your risk?
There are many types of risks that can be covered with insurance such as-
- The insured family or nominee will be paid if an insured person is dead in an accident in case of life insurance.
- In the case of medical insurance, your treatment charges will be paid by the insurance company.
- Imagine you’re driving your car and you hit a deer, which damages your car. If you have the right kind of auto insurance policy, the insurance company will pay the costs of the car repairs (minus the deductible- the portion you have to pay).
- Now, imagine a water pipe bursts in your bathroom, ruining everything in that room and in the bedroom next to it. Typically, if you have homeowner’s or renter’s insurance, the insurance company will pay to replace some or all of the damaged property, once you pay your deductible. Insurance policies will only pay for things that are described in the policy.
- So, it’s important to read a policy carefully before you buy it, so you’ll know exactly what’s covered.
Why is insurance so important?
Insurance is keeping a very important role in the life of a person. The life of a person is variable and he will have to see many problems and risks in his journey. Insurance is important due to its many benefits such as-
- Insurance gives Life Risk Cover.
- It gives Death Benefits.
- And it also gives Return on Investment.
- Deduction under income tax u/s 80c-Tax Benefits.
- After insurance, you will feel Financial security.
- You will make Security of the child’s future.
- Loan Options. and prevent loan burden.
- It will be beneficial in your Retirement
- Health and Medical care
- Assured Income Benefits and more.
What are the types of Insurance?
There are many types of insurance, but some common types are described here.
Health Insurance: Helps you pay for doctor fees and sometimes prescription drugs. Once you buy health insurance coverage, you and your health insurer each agree to pay a part of your medical expenses — usually a certain amount or percentage of the expenses.
Life Insurance: Pays a person you select a set amount of money if or when you die. The money from your life insurance policy can help your family pay bills and cover living expenses.
Education Insurance: Child education insurance is akin to a life insurance policy that has been specially designed as a saving tool. Education insurance can be a great way to provide a lump sum amount of money when your child reaches the age for higher education and gains entry into college (18 years and above).
Disability Insurance: Protects individuals and their families from financial hardship when illness or injury prevents them from earning a living. Many employers offer some form of disability coverage to employees, or you can buy an individual disability insurance policy.
Auto Insurance: Protects you from paying the full cost for vehicle repairs and medical expenses due to a collision. In most states, the law requires you to have auto insurance when operating a motor vehicle.
Homeowner’s or renter’s insurance: Protects your home and personal property against damage or loss and insure you in case someone gets hurt while on your property. If you have a mortgage on your property, most lenders require you to have homeowner’s insurance as a condition of the loan.
Why should I get Insurance?
You must have insurance because If you have no insurance and suddenly an accident happens, you may be responsible for all related costs. Having the right insurance for the risks can make a big difference in your life. And the insurance is the one that can pay your family after your death.
How are insurance benefits in Income tax?
Apart from the safety and security benefits of buying insurance, there are also the income tax benefits that can be availed such as
- Life Insurance Premium- upto150000 under section 80C.
- Medical Insurance premium- up to 25000 under section 80D.
Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving deduction under Section 80C
Medical insurance premiums of up to ₹25,000 for yourself and your family and ₹25,000 for your parents can be claimed as a tax-saving deduction under Section 80D.
These claims have to be made at the time of e-filing income tax returns.
What are the types of Life Insurance Policies?
There are different types of insurance policies when it comes to life insurance. These are:
- Whole Life Insurance – As the name suggests, such policies offer life cover for the whole life of an individual, instead of a specified term. Some insurers may restrict the whole life insurance tenure to 100 years.
- Term Plan – The death benefit from a term plan is only available for a specified period, for instance, 40 years from the date of policy purchase.
- Endowment Plan – Endowment plans are life insurance policies where a portion of your premiums go toward the death benefit, while the remaining is invested by the insurance provider. Maturity benefits, death benefits, and periodic bonuses are some types of assistance from endowment policies.
- Unit Linked Insurance Plans or ULIPs – Similar to endowment plans, a part of your insurance premiums goes toward mutual fund investments, while the remaining goes toward the death benefit.
- Child’s Plan – Investment cum insurance policy, which provides financial aid for your children throughout their lives. The death benefit is available as a lump-sum payment after the death of parents.
- Money-Back – Such policies pay a certain percentage of the plan’s sum assured after regular intervals. This is known as a survival benefit.
- Retirement Plan – Also known as pension plans, these policies are a fusion of investment and insurance. A portion of the premiums goes toward creating a retirement corpus for the policyholder. This is available as a lump sum or monthly payment after the policyholder retires.
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An Accountant, GSTP, GST blogger, Website Creator, SEO Builder & Co-founder of the website https://gstportalindia.in for the help of GST Taxpayers of India. Having a perfect accounting experience of more than 10 years in a Private Ltd Company.