Insurance
Insurance is a system that protects people and businesses from financial loss by transferring risk to an insurance company in exchange for a regular payment called a premium. It acts like a safety net so that when unexpected events happen—such as accidents, illness, death, or damage to property—the financial impact is reduced or covered according to the policy terms
Basic meaning and how it works
Insurance is a legal contract between the policyholder (person or business buying insurance) and the insurer (insurance company). The policyholder pays premiums, and in return the insurer promises to pay compensation or provide services if a covered event occurs during the policy period.
Main types of insurance
In simple terms, insurance is often divided into two broad groups: life insurance and general (non‑life) insurance.
Life insurance: This provides financial support to a family or beneficiary if the insured person dies, and some plans also offer savings or investment benefits. Common types include term insurance, whole life, endowment, ULIPs, child plans, and retirement or pension plans.
General insurance: This covers assets and short‑term risks such as health expenses, vehicles, home, travel, fire, and business liabilities. Examples include health insurance, motor insurance, home insurance, travel insurance, and commercial or asset insurance.
Both categories aim to protect against specific risks but work over different time frames and with different benefits.
Life and health protection
Life insurance is mainly used to secure a family’s financial future by providing a lump sum if the earning member dies during the policy term. This amount can help pay daily expenses, loans, children’s education, and major life goals that would otherwise become difficult to handle.
Health insurance focuses on paying hospital and medical costs when someone falls ill or is injured. Policies can cover hospitalization, surgery, doctor fees, medicines, and sometimes special covers like critical illness, maternity, or personal accident benefits. This prevents medical emergencies from turning into long‑term financial crises.
Property, vehicle, and business cover
General insurance also includes protection for physical assets like homes, shops, factories, and vehicles. Motor insurance, for example, covers damage to your vehicle and liability towards others in case of road accidents, and is often legally required.
Why insurance is important
Insurance provides financial security and peace of mind because it replaces uncertainty with a clear promise of support if something goes wrong. Instead of worrying “how will I manage if this happens?”, policyholders know there is a structured plan that will provide money when specific events occur.
Key principles to understand
Insurance is built on a few basic principles, such as insurable interest (you can insure only something where you would suffer a real loss), utmost good faith (both sides must share truthful information), and indemnity (for many policies, the aim is to restore you to your financial position before the loss, not to profit). Premiums are calculated based on the level of risk: higher risk usually means higher premium, and safer behavior can often reduce costs.
Reading and understanding an insurance policy is important because coverage, exclusions, limits, and claim procedures are all defined in that document. Choosing the right type and amount of insurance helps individuals and businesses manage risk wisely and protect their financial future against life’s uncertainties.