What is Insurance?

When it comes to good financial planning, one must ensure that all potential future risks are covered. That is where Insurance comes into picture. It is the key to good financial planning and is an important risk management tool. In very simple language, it is financial planning system where you pay an insurance company some amount of money periodically called premium, to ensure that they would step in and provide you or your family monetary help in difficult times. Of course, there are certain terms and conditions that should be fulfilled before you can benefit from this financial tool.

The person who buys insurance from an insurance company is called the insured and the provider is called insurer. When buying an insurance policy, the insured have to agree to the terms and conditions laid down by the insurer and hence, a contract is formed. There are various types of insurance like life insurance, property insurance, liability insurance, etc. It allows individuals, businesses and others to protect their future against unknown future hardship or calamity of huge proportions, at a reasonable rate. So, you get an idea that if a person is investing in an insurance policy, the potential loss would be a significant one. Insurance makes sense only when the insured thing is valuable.

Let’s understand this with the help of an example. Say, you are the only earning member of your family. So, if something untoward were to happen to you, your family would be in great financial hardship. It would be extremely difficult for them to cope with the difficult times without any financial help from outside. So, if you had invested in life insurance for yourself, it will save your family a great deal of trouble. The insurance company will step in to replace your income based on the premium you had paid to the company. The same principal applies to property insurance, health insurance or any other form of insurance.

Insurance is designed to help you monetarily in the most difficult and traumatic times of your life. You might consider buying an insurance policy for several reasons. A few of them are mentioned below.

•           To provide for and protect your family in case of the death of a sole bread winner.

•           To ensure that your debts are covered after your death.

•           To protect your business against unforeseeable problems like damage from fire, floods, etc.

•           To protect your home from theft, burglary, etc.

•           To provide for unforeseeable health expenses.

•           To protect yourself in case of a disability.

•           To protect your valuables like car, expensive gadgets, etc.

One can never be sure of what the future holds for them. So, it is always better to get appropriate insurances. But, one should understand that the market is filled with numerous insurance policies. You should research well and find out what is best for you.