Definition and Meaning of Insurance

Definition and Meaning of Insurance

Definition and Meaning of Insurance

A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between theinsured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability insurance, life insurance, and business insurance.
Meaning of Insurance a promise of compensation for any potential future losses. It facilitates financial protection against by reimbursing losses during crisis. There are different insurance companies that offer wide range of insurance options and an insurance purchaser can select as per own convenience and preference.
Several insurances provide comprehensive coverage with affordable premiums. Premiums are periodical payment and different insurers offer diverse premium options.The periodical insurance premiums are calculated according to the total insurance amount.
Mainly insurance is used as an effective tool of risk management as quantified risks of different volumes can be insured.
Types of Insurance:
Major types of insurances are as mentioned below:

  • Life insurance: Descendent’s family receives financial benefits. Life insurances also offer paid proceeds to the beneficiary.
  • Automobile insurance: Usually automobile insurances cover damages and legal financial expenditures of the automobile driver.
  • Health insurance: Health insurance cover the expenditures associated to treatment and medical expenditures.
  • Credit insurance: Borrowers often fail to repay debts,loans and mortgages due to certain unavoidable circumstances,credit insurances can be of great help during such crisis.
  • Property insurance: Property protection insurance provide protection from risks associated to theft,fire,floods etc.
    This type of insurance can be further classified into specialized forms as follows:

    • Fire insurance
    • Earthquake insurance
    • Flood insurance
    • Home insurance
    • Boiler insurance

At present insurance market is much vibrant than before and this has an impact on the rates of different insurance premiums.
Types of Insurance Companies:
Insurance companies can be categorized into two main divisions which are as follows:

  • General Insurance Companies: They provide all types of insurance apart from life insurance.
  • Life Insurance Companies: The companies, dealing with life insurance, pension products and annuities are life insurance companies.

Insurance companies are usually identified as stock companies. Insurance is a device for indemnifying an individual against loss and in the recent past due to natural calamities, few insurance companies have suffered financial setback. Premiums of few insurances have suddenly gone uphill as plenty of insurance providers have become insolvent. While selecting an insurance company, financial strength of the company must be considered as viability of the insurance provider is extremely crucial.