Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss
Insurance is the most effective risk management tool which can protect individuals and businesses from financial risks arising out of various contingencies. The emotional and psychological loss can never be compensated, but at least the financial loss can be compensated with insurance. Though there are uncertainties in life which you cannot mitigate, but insurance will surely help you transfer the financial risk associated with the same.
HOW DOES INSURANCE WORK
The concept of insurance works on the basis of ‘risk pooling’. When you buy any type of insurance policy from the insurance company for a specified period with specific cover, you will make regular payments (referred to as premiums) towards the policy. Similarly, Insurance Company collects premium from all of its clients (referred to as insured) and pools the money collected to pay for losses arising out of an insured event. In case the insured event takes place, and you make a claim, losses will be compensated by the insurance company from the pool of policyholder’s premiums. In case you don’t make a claim during the specified policy period, no benefits will be paid to you. However, there are various types of products offered by insurance companies today which also involve savings element attached to it.
WHAT IS THE DEDUCTABLE IN INSURANCE
Deductible refers to the amount of the claim that is incurred by the policyholder. The deductible amount, as the name suggests, is the amount that is deducted from the claim amount of an insurance policy. For instance, if the agreed deductible is INR 20,000 and the claim raised by the policyholder is ₹40,000 then the insurance company will only pay INR 20,000 to the policyholder. This, in turn, specifies that if only the claim amount exceeds the deductible amount, the insurance company will pay you.
The higher the deductibles, the lower is the premium of the particular insurance plan and vice-versa. Deductibles play a vital role in deciding the practicality of your future claims. So, it is vital to pay utmost heed when deciding the deductibles for your insurance plan.
KEY FEATURES OF INSURANCE
1. Easy to purchase -
One of the features of an insurance policy is its ease of purchase. Due to the widespread use of the internet, people can now easily purchase a policy by sitting in their comfort zone. Most insurance companies provide the option of both online and offline purchases of the policies so people can choose as per their comfort.
2. A partner in a financial crisis -
The basic purpose of an insurance policy is to provide financial help when in need. Be it health, vehicle, or any other insurance policy, the aim is to extend the monetary aid.
3. Abundant options -
The current insurance market is full of a number of options. A customer need not stick to a few options. There is great flexibility to surf all the options available and then make the final decision.
4. Benefits of Insurance -
One insurance policy provides a number of benefits. Right from providing financial coverage to tax benefits and so on, insurance coverag provides wide coverage.
5. Offers -
There are several occasions when the insurance company provide offers for the policyholder. It may be a reduction in the renewal amount or anything as such. No claim bonus is also a happy moment. It is the bonus provided for making no claims in a policy year.
6.Insurance for every precious thing -
There is the facility of insurance for almost all precious and luxury things. Apart from the life insurance, you can get a cover for your vehicle, home, mobile, jewellery, etc.
7. A cover for family -
Insurance policies are not limited to covering only one person. When it comes to a life insurance policy, several plans allow a policyholder can get their whole family covered.
8. The ease of insurance premium calculator -
Almost all the insurance companies provide the easy of insurance premium calculator. An individual can calculate the lumpsum premium he will have to pay in lieu of the insurance cover. It makes it easier for the customers to decide their deal.
TAX BENEFITS OF VARIOUS TYPES OF INSURANCE IN INDIA
Amount paid toward premium for different types of life insurance plans is tax-deductible
1. Under Section 80C of income tax 1981, the premium payable towards all types of life insurance plans is tax-deductible up to Rs 1.5 lakh
2. Under Section 80D of income tax 1981, the premium payable towards all types of health insurance plans is tax-deductible, subject to a maximum of Rs 25,000 for self, wife and children and additional 25,000 for parents having age below 60 years (the tax savings can go up to Rs 50,000 for senior citizens individual and 50000 if parents are senior citizens. Total deduction can go upto 1Lakh)