A Beginner’s Guide to Insurance

Obtaining the right kind of insurance is central to appear financial planning. Some of us may have some form of insurance but hardly any really understand what it is or why one should have it. Intended for most Indians insurance is a form of investment or a superb duty saving avenue. Ask an average person about his or her investments and they will proudly mention an insurance product as part of their core investments. Of the approximately 5% of Indians that are covered the proportion of those adequately insured is much lower. Hardly any of the insured view insurance as purely that. There is perhaps no other financial product that has experienced such rampant mis-selling at the hands of brokers who are over excited in selling products connecting insurance to investment generating them fat commissions. insurance

What is Insurance?

Insurance is a way of distributing out significant financial risk of a person or business entity to a sizable group of individuals or business entities in the occurrence of an unlucky event that is predetermined. The price tag on being insured is the monthly or twelve-monthly compensation paid to the insurance company. In the purest form of insurance if the predefined event does not occur before the period specified the money paid as reimbursement is not retrieved. Insurance is effectively a means of spreading risk among a pool of men and women who are insured and lighten up their financial burden in the event of a shock.

Insured and Insurance provider

When you seek elimination of financial risk and make a contract with an insurance carrier you become the insured and the insurance company becomes your insurer.

Sum assured

Is obviously Insurance this is the amount of money the insurer promises to pay when the insured is disapated before the predefined time. That is not include bonuses added in case there is non-term insurance. In non-life insurance this guaranteed amount may be called as Insurance Cover.

Premium

For the protection against financial risk a provider provides, the insured must pay payment. This is known as premium. They may be paid annually, quarterly, regular monthly or as decided in the contract. Total amount of premiums paid is many times lesser than the insurance cover or it wouldn’t make much sense to seek insurance at all. Factors that determine premium are the cover, period of time for which insurance is searched for, age of the covered (individual, vehicle, etc), to name a few.

Nominee

The beneficiary who is specified by the covered to get the sum guaranteed and other benefits, if any is the nominee. In the case of life insurance it must be another person in addition to the insured.

Policy Term

Period you want protection for is the term of policy. Term is made the decision by the insured at the time of purchasing the policy.

Rider

Specific coverage may offer additional features as add-ons aside from the actual cover. These can be possessed by paying extra monthly premiums. If those features were to be bought independently they would be more expensive. For example you could add on a personal accident rider with your life insurance.

Surrender Worth and Paid-up Value

In the event you want to quit a plan before its term ends you can bring to close it and take again your money. The quantity the insurer will pay you in this instance is called the surrender value. The policy ceases to exist. Instead if you just stop paying the premiums mid way but do not withdraw money the total amount is called as paid-up. In the term’s end the insurer pays you in proportion of the paid-up value.

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