We hear a lot about insurance from advertisements and insurance agents. It is a safety net for our finances, providing protection against unexpected events and helping to mitigate financial risks. It offers payment of specific amount of money in case of accidents, illnesses, or other unforeseen circumstances. This financial safeguard allows us to navigate life’s uncertainties with greater confidence and security. It is a great ‘financial security tool’.
Definition
An insurance is a legal contract between two or more parties. Such a contract contains an agreement which states that a person/institution will pay a premium in exchange for a promise of compensation for a specific loss, damage or illness, etc. 🦺 🦺
What is a premium ? 💵
A premium is a fee/money we pay for an insurance policy. It can be on a monthly basis, or it can be annual, depending on the policy you choose. Every year we pay this fee as a premium which insures us the compensation money if something unfortunate happens.
For how many times we need to pay the insurance premium ?
Most of the insurance policies expire in a year (annually). But it depends on the specific policy you choose whether it will expire in a year or run longer.
- People, mostly, choose monthly or yearly payment frequency.
- But there are more options too →
- Quarterly – you pay every 3 months. So, you pay 4 times a year.
- Half yearly – you pay every 6 months. Premium frequency = twice a year.
- Monthly – you pay premium 12 times a year.
- yearly – you pay all your premium once a year. For this one time payment, you may get some discount on the premium.
- Customized – you can choose the payment frequency as per your need. The policy provider may give you the customization option for the premium payments.
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What’s the point of purchasing such insurance policies that expires every year ?
The policies may expire every year, but the amount of compensation they offer in exchange for the premium is far more than the premium we pay.
- The amount and the premium are highly subjective and change from person to person.
- Example – A healthy non-smoker, non-alcoholic young person may get a life insurance of 1 crore for a monthly payment of Rs.500.
- But a smoker, an alcoholic person may not get the same amount insured for the same premium as a healthy person. Such unhealthy and alcoholic, smokers get costly policy compared to a healthy person.
- It assures us that the amount of money we pay as the premium is very low compared to the amount of money the assured promise us to pay in a specific unforeseen situation.
- That is why we need insurance to protect our savings and make ourselves financially prepared.
Types of insurances –
- Life insurance –
- Term
- Whole life
- Endowment
- ULIPs (unit linked insurance plan)
- Child
- Retirement
- General insurance –
- Health.
- Motor/Vehicle.
- House.
- Travel
- Commercial
Who is the regulator ?
- IRDAI (Insurance Regulatory and Development Authority of India) is the regulating authority for insurance industry/market in India.
- It protects the interest of policyholders in India.
Visit ⇾ IRDAI official website
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