What is Insurance? Its Types, Advantages and 10 facts

In this article, we have explained – What is Insurance? Its Types, Advantages, Disadvantages and 10 facts about insurance.

What is Insurance?

Insurance is defined as a means of protection from financial loss. It is a type of risk management that primarily used to hedge against the risk of dependent or urgent loss. 

The company which provides the Insurance is known as the insurer, and one who buys Insurance is known as the policyholder. The transaction involves guaranteeing the insured with a financial guarantee against the small premium paid by the party to the insurer if there is any loss of the insured item. 

The insured receives a document known as an insurance policy which contains all the terms and condition under which circumstances is the insurer will be liable to reimburse the insured.

The volume of money charged by the insurer to the policyholder for coverage of the policy is known as premium. The deficit may or may not be financial, but it deduced to monetary terms.

History

The method of risk management, distributing the risk by Babylon and Chinese traders, backs up to 2nd millennium BC respectively. Chinese traders would distribute their goods in various vessels while crossing rivers so that the entire products are not lost if it kept in a single vessel.

When a merchant obtained a loan to fund his shipment, the merchant would pay additional to the lender as a guarantee so that the loan would get canceled if the shipment got lost in the sea or stolen.

In the 14th Century, Genoa had invented the insurance contracts; the first documented policy was of 1346 in Genoa, and over the next century, the maritime Insurance developed, and the premiums varied concerning the risks. 

During the enlightenment ear of Europe, the Insurance became far more sophisticated, and specialization varieties developed. The property insurance dates back to the great London fire in 1666, which devoured more than 13000 houses. The devastation due to the fire converted the development of Insurance from matter of convenience to matter of urgency. 

Many insurance schemes drafted, but in 1681 economist Nicholas Barbon and eleven associates were the first to establish the first insurance company known as “Insurance Office for Houses,” they initially insured 5000 houses. 

During the same period, Insurance for business ventures was made available. The importance of London, as the center of trade grew the demand for marine Insurance increased by the end of the 17th Century. 

In the early 18th Century, the first life insurance policies issued. The amicable Society for Perpetual Assurance office was the first company to release the life insurance policy. In the later part of the 19th Century, an accidental insurance policy was being made available. 

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Railway Passengers Assurance Company, which formed in 1848 England, was the first company to provide accident insurance policy due to the rising fatalities on the nascent railway system. The government also began to initiate national insurance programs against old age and sickness. 

Legal Aspect of Insurance

There are basic legal requirements and regularities when a company insures an individual entity. The most common legal principles cited in insurance policies are as follows:

1. Indemnity

The insurance companies indemnify or compensate the insured in case of any losses only up to the insured’s interest.

2. Benefits Insurance

It clearly stated in the books of The Chartered Insurance Institute, the company has to compensate the insured but cannot recover from the party who has caused the injury, regardless the insured has already sued the negligent party.

3. Insurable Interest

Insurable interest exists whether the Insurance is for a person or the property. The concept requires that the insured should have a stake in the loss of life or property insured.

The importance of the stake will be determined by the kind of Insurance involved & the nature of the property owner of the relationship between the two people. This factor distinguishes Insurance from gambling.

4. Utmost Good faith

The insurer and insured bound by good faith.

5. Contribution

With some method, the insurer, which has similar obligations to the insured, contributes to the indemnification.

6. Subrogation

The insurance company has to acquire legal rights from the insured to claim the recoveries from the party that caused the damage.

7. Causa Proxima

Under the insurance agreement of the policy, the cause of the loss must be covered, and the dominant cause must not be excluded.

8. Mitigation

In case of any loss or casualty, the owner of the property should try to keep damage to a minimum, letting to see that the asset was not insured.

Types of Insurance

The following categories of insurance policies are:

1. Life Insurance Policy:

The insurance policy issues the policy in exchange for the premium payments against which the insurer is guaranteed a lump sum payment to the policy beneficiaries upon the insurer’s death.

2. Property Insurance:

The insurance policy which protects the property against most risk is known as property insurance. It includes a specialized form of Insurance protecting property against natural disasters like floods, fire, earthquakes, etc.

3. Marine Insurance:

Marine Insurance is the insurer’s claim to compensate the owner of a ship or cargo for a full or partial loss to the sea.

The insurer takes the insured to the extent that it is entitled to compensation in that manner and accepts it for sea damage. 

4. Fire Insurance:

Fire Insurance is a type of property insurance that ensures the insurer if his/her property is damaged due to fire gets the lump sum amount, which covers the cost of replacement of the property.

5. Liability Insurance:

The insurance policy which protects the insurer from the risk of liabilities imposed by lawsuits and similar claims, it is part of the general Insurance.

6. Guarantee Insurance:

The Financial loss caused due to insolvency, default on the payment, change in interest level, rate changes in currency exchange is covered under the Guarantee insurance policy.

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7. Social Insurance:

The policy sponsored by the Government, which ensures certain benefits, primarily monetary, is provided to the insurer. Programs like provident fund, national pension scheme, etc. are some of the best examples for Social Insurance.

8. Auto Insurance:

Auto insurance is an accord between you and the insurance firm that protects you from a monetary deficit in the event of an accident or theft. As a result of paying your premium, the insurance company accepts your loss, as stated in your policy. 

Provides coverage for auto insurance:

Property – Your car is damaged or stolen
Liability – Your legal liability to others for bodily injury or property damage.
Healing – The cost of treatment for injuries, rehabilitation and sometimes wages and funeral expenses.

Policies are usually issued for a period of six months or a year and are reproducible. The insurance firm will send a notice when it is time to renew the policy and pay your premium.

9. Travelling Insurance:

Traveling to different places is the best fun, but only if you’re on a safe and trouble-free journey. This article section will provide you with the perfect information about the benefits of travel insurance and how to be your right guide, any problems on your journey, and unexpected events that may jeopardize the importance of travel insurance.

From international to domestic and corporate to family trips, travel insurance offers great travel comfort for all. Travel is enjoyable and comfortable when your journey is free of trouble.

10. Home Protection Insurance:

Home insurance is a part of every homeowner’s life. It protects not only your home but also your personal property and property from any accident or damage caused by man-made or natural causes.

In addition, banks and lending institutions now require all home loan applicants to provide some clues about how to take out a home insurance policy for the property.

11. Jeweler Insurance:

Jewelry Insurance covers theft of jewelry, damage or burglary, or accidental loss kept in some fixed bank lockers. This insurance policy offers protection of jewelry worn in person. Usually, there is a sub-limit on the jewelry to be insured.  

12. Health Insurance

This insurance covers a part or whole of the risk of someone incurring spreading the risk or medical expenses over many people. 

In India, there are many banks and financial institutions that offer a variety of home loans, each with unique facilities and utilities to meet a variety of financial needs. However, choosing the right home loan for you can be a daunting task.

There is a lot for home insurance beyond premium installments or tenure queries. It can be used as a home insurance guide. With this guide, you can keep all the questions you don’t know about home insurance policies, questions, and details in mind.

Top Ten Facts of Insurance

The astounding top ten facts of Insurance are as follows-

1. Even though home insurance does not cover damages caused due to floods or earthquakes, the insurance does cover your house if it is damaged due to a volcano or meteor.

2. The health care insurance will cost far much less if the insurer first visited the primary physicians rather than visiting them directly to emergency rooms.

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3. The credit score plays a major role while issuing the Insurance to an insured.

4. Some of the home insurance policy prohibits the insured having some of the dog breeds in their home since dogs of a certain race are prone to bite their owner, causing damage which required medical attention.

5. When parents add the teenager’s names to the car insurance policy or if the teenager is buying their own policy, the premium for the insurance policy becomes costly. Especially if a male teenager acquires the insurance policy compare to the female teenager.

6. Many employers provide insurance to the employee’s parents and spouses of the employees and their children.

7. The American baseball club San Diego Padre has signed up LaChappa for twenty-six years so that he doesn’t lose his health insurance since he suffered a heart attack at the age of twenty while practicing for a game. 

8. Aquafresh insured the smile of actress America Ferrera for $10,000,000, in which the policy covered the dental treatment cost caused due to accidental injury.

9. There is also an alien abduction insurance policy that is available in the USA from 1987.

10. Unrelated Kidney donors are incentivized in Iran by providing them with financial compensation and Health insurance.

Advantages of Insurance

Nowadays, Insurance is part of human and business life; it has played a vital role in solving many of the personal and business life. 

Providing Security

There is always the fear of loss. Factory fires, sea storms, or casualties. In all these cases, it is difficult to bear the loss. Insurance protects against any sudden loss. In the case of marine and fire insurance, the damage to the insured is fully recoverable and restored to its former state.

Spreading of Risk

The vital principle of Insurance is to spread the risk to a large number of people. A large number of people get an insurance policy and pay premiums to the insurer. Whenever there is a loss, it is replaced by an insurance fund. The risks are distributed across a large number of policyholders.

The insurance covers a person’s loss but cannot eliminate social damages. If a person’s property goes through the fire, the insurance company will compensate him. Loss of goods is a social loss. Insurance does not eliminate risk, but it does reduce the risk to the individual.

Disadvantages of Insurance:

Removes claims or pays off slowly

Since business insurance is confusing with many types of policies, it can be stated that the company does not cover the procedure. Also, many claims take time to process because insurance companies need to assess risks and determine an accurate accounting of losses. The time and energy required can be exasperating for the business owner and ends.

The Bottom Line

Business owners are continually checking budgets and finding ways to save money. Insurance is expensive, especially in some industries where workers’ compensation injuries are common. Accounting office-building business policies are more expensive than policies. 

As the business grows, it must review its policies to ensure it can meet current needs. Otherwise, the policy does not fully cover the loss, which leaves the business under Insurance.