What is Insurance? and Types of Insurance

There are many insurance products available nowadays and almost every person and thing can be insured.

It will not be important for an ordinary person to know the types of insurance but it is very important for professional people such as financial advisors, insurance agents, or people associated with it to have such basic information.

It helps in building up the level of confidence as well as it helps in giving professional advice to its clients.

Well everyone should have this kind of information because insurance is an important part of our life. In this post, we will discuss what is insurance, types of insurance (non-life and life).

Although the insurance market has grown over the years it is still operating under the same principle.

As you would know that to promote and regulate insurance companies related to insurance and re-insurance, an organization is created in every country like the Insurance Regulatory and Development Authority of India (IRDAI) in India.

The job of such organizations is to promote insurance products in the country and at the same time protect the interests of the policyholders so that no insurance company can cheat any customer.

That is why whenever an insurance company brings a new insurance product, it first has to get approval from an organization like IRDAI to sell the product. The company can also refuse to sell the product if it finds any defect in the product.

There are basically 3 types of insurance: life insurance, non-life insurance, and re-insurance. Whatever types of insurance you see next, all those insurances come under these three.

Right now we will discuss insurance and types of insurance.

What is Insurance?

Insurance is a legal agreement in which two parties (insured and insurance company) come to mutual consent. In insurance, the insured has to pay a fixed premium and in return, the insurance company has to indemnify the insured on the occurrence of the event.

In this way, insurance provides protection to a person or his family. The amount can be paid to the insurance company in one go or can also be made as an annual/monthly/quarterly/half-yearly premium. The benefits available depend on the type of insurance.

Some insurance policies have death benefits and in some, the sum assured is available on completion of the policy.

Types of Insurance

Basically, there are three types of insurance:

  • Life Insurance – Life Insurance
  • Non-Life Insurance – General Insurance
  • Reinsurance – Reinsurance

1. Life Insurance

Life insurance is one of the types of insurance. Which the insured gets coverage against death. In life insurance, two parties (the insurance company and the policyholder) sign a contract with mutual understanding.

In a contract of life insurance, the policyholder pays a fee called premium to get coverage against specified events and the insurer pays a fixed sum assured in the event of a loss.

Nowadays life insurance companies offer many types of insurance to meet all the insurance needs.

For example, term insurance or term life insurance is suitable for individuals who want to financially strengthen the family in case of their own death, life insurance is best for those who want lifelong protection, and so on endowments, Insurance plans are suitable for those who want to invest their money with life insurance.

The basic purpose of life insurance is to provide financial assistance to the family of the insured after his death. You also get to see some such life insurance policies in which the insured gets a fixed amount on the completion of the policy term.

2. Non-Life Insurance

Non-life insurance is also known as general insurance. This type of insurance provides coverage for damages other than benefits available for example health insurance, home/property insurance, auto insurance, business insurance, etc.

In other words, you can say that other than life insurance products the types of insurance that provide cover are non-life insurance products.

Mobile or gadget insurance comes under non-life insurance in which the policyholder gets compensation for physical damage or damage to his electronic gadgets such as mobile phones, laptops, tablets, LED TVs, notebooks, etc.

Health insurance is also classified under non-life insurance. Health insurance policies provide cover for medical expenses incurred in hospitals for treatment of accidents or illnesses.

3. Reinsurance

No one is safe in today’s era, not even the insurance company. Insurance companies are also exposed to many types of risks.

When an insurance company insures itself against certain risks (for example, if too many claims have to be paid at once), this type of insurance is called a reinsurance policy.

Insurance companies also buy reinsurance policies from other insurance companies to bear the additional financial burden. It is a risk management technique to run the company over the long run.

Insurance companies who provide insurance to other insurance companies are called reinsurers. Here are some of the reasons why an insurance company buys reinsurance.

To bear the financial burden, in case the claims exceed the required limit.

When the insurance company is going to provide cover for a major risk.