Learn All About Insurance | Its Meaning, Benefits and Types

Table of Contents

What is Risk?

Before we understand what Insurance is, let us understand what is “Risk”?

The term “Risk” in financial term is defined as uncertainty concerning occurrence of loss. The “risk” as often used in situations where the probability of possible outcomes can be estimated with some accuracy, while “uncertainty” is used in situations where such probabilities cannot be estimated.

What is the meaning of Insurance?

Insurance is a contractual relationship that exists when one party (the insurer) for a consideration (the premium) agrees to reimburse another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies. Insurance Development Regulatory Authority of India, established in the year 1999 is controlling insurance industry. IDRAI has been established to protect interest of general public and to develop insurance industry on the basis of free competition and free marketability of insurance products.

What are types of Insurance?

In India, insurance are broadly divided in two types:

  1. Life Insurance : In simple terms, life insurance provides risk coverage of policy holder in case of death or disability. It secures your family’s financial security even in your absence or even after retirement depending upon the policy you hold.
  2. General Insurance : Its a contract that provides financial protection for any loss other than death. The financial loss can be due to liabilities related to your bike, car, health, house, travel, etc.

What are benefits of Insurance?

Payment of premium not only gives insurance cover to a Policy Holder but also offers certain tax benefits. Below are the benefits of buying a insurance:

  1. Risk Coverage: Insurance coverage is a amount of risk, liability or potential loss that is protected by insurance. It helps individuals recover from financial losses as a result of incidents, such as death, car accidents, damaged property or unexpected health issues.
  2. Tax Benefits: Policy holders are offered some tax benefits as mentioned below:
    • Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.
    • Deductions u/s 80D is allowed up to Rs. 25,000 for medical insurance premium paid for self, spouse or dependent children. or parents below 60 years of age of tax payer. If policy holder is senior citizen, then deductions u/s 80D is allowed up to Rs. 50,000
    • Deductions u/s 80D is allowed up to Rs. 1,00,000 for medical insurance premium paid for  parents of tax payer. Deduction on account of medical expenditure shall be allowed only when it is incurred on the health of the aforementioned persons who are senior citizens. 

So we can conclude that buying insurance is important as it ensures that you are financially secure to face any type of problem in life. The best part of it is that you can purchase all these insurance policies online nowadays.

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