We are living in a world of uncertainty. This means we do not know what will happen in future. Many things are not in our control.
The loss of earning or damage to property occurring due to uncertainty is a matter of concern. Uncertainty involves risk of loss or damage. We can take precautions to some extent but it is not possible to avoid them totally.
Whoever suffers a loss, he or she would like to be compensated in monetary terms either fully or partially for that loss or damage. Insurance ensures some compensation against loss or damage to the person concerned. Insurance is just like a good or product. Anybody who thinks that he or she has some chance to incur loss or suffer damages, can have insurance by paying some money.
The seller of insurance is called insurer and buyer of insurance is called insured. The money paid by the insured or buyer of insurance is called premium. Normally, the premium is paid for a specified number of years. If any loss occurs during this period then the insured person get due compensation from the insurer.
Insurance can be defined as a financial product which can be purchased to partly or fully recovered any loss happening due to event beyond the control of the insured party. Normally the seller of insurance is a insurance company. When the insured person incurs any loss, the insurance company pays back some amount of money to compensate for the loss. This is called insurance claim. Hence insurance allows a person to reduce risk due to uncertainty.
1. Auto Insurance
People who have scooters, bikes, cars can buy auto insurance from a concerned insurance company. Since automobile is a durable good and has a long life span, say 10 to 15 years, the insurance policy is made in the following way:
In the first year, the auto is new. So the insurance company charges higher money as premium from the insured person. In subsequent years, the vehicle becomes old and its value falls gradually. So the company will charge less premium from the insured person. Whenever there is any damage caused to the automobile, the company gives the claim calculated on the basis of terms and conditions mentioned in the insurance policy.
2. Health Insurance
Under health insurance scheme, a person who buys this insurance, can get back some amount of money out of total expenditure on medical treatment. In this case also, the insurance company asks the interested person to pay a nominal amount as premium every year. Whenever the insured person falls ill and spends money on medical treatment, the insurance company gives some amount to reduce the burden of the person. Normally the premium is low, if a person buys the health insurance at a younger age. The premium amount increases as the person grows older.
3. Life Insurance
A person can buy life insurance for a particular time period. The time period could be 10 or 25 years. Every year the insured person has to pay a certain amount of premium to the insurance company. The company gives back the claim to the person after the time period is over. The amount can also be paid in installments by the insurance company on yearly basis also. If the person dies in between, the claim is given to his or her nominee, whom the person had named while buying life insurance.