Insurance Planning

Insurance planning & Risk Management:

In simple terms insurance can be defined as a process or mechanism for mitigating risks from probable unprecedented events.Insurance ensures indemnity to compensate for  financial loss occurrence events that may or may not happen in future.Therefore, insurance works as risk mitigation or risk management process.One of the most important point in insurance is “Indemnity”. We can say that insurance is an agreement or contract of indemnity between two parties i.e. insurer and insured.It should be kept in mind that insurance contract is for mitigation of financial loss or damage only.Thus, insurance contract ensures prevention of financial loss and not profiteering.It means insurance works on indemnity principle i.e compensate for the actual loss value and not more than that so that it can be perceived as profit making process.

So, we can refer that managing the risks from any probable future financial losses is the risk managing process.May be the insurance coverage do not provide you the full value of any property that you have lost but it can help you in minimizing the loss you intake.

Why should I do insurance?

The basic question that everyone asks is why they need insurance.Or what is the necessary of having an insurance plan in place.Well, look the answer is very simple.Since we are not very sure of our future and not we have very much control on every future unprecedented events,to protect ourselves from every financial losses that might jeopardize many of our aspirations,we must have a contract of indemnity in place for our own sake and family as well.Therefore, the obvious answer is, insurance is for protection,for prevention,for indemnification,for risk mitigation.

General principles of an insurance contract:

General insurance principles

Basically, there are six principles based on which an insurance contract forms.

  1. Insurable Interest: This means you must have an interest in the property you are insuring for.You must derive some financial or other benefit from the continuous existence of the insured property.
  2. Utmost good faith: This means when you are seeking for an insurance you must disclose all relevant information to the insurer.So that the insurer can make a prudent decision regarding fixing of premium and taking on risk.
  3. Proximate causeThis principle says that there must be a dominant cause that sets in playing a chain of events.For example if a person meets with an accident and he lost his life,here accident would be considered as proximate cause.
  4. Indemnity:Principle of indemnity says that indemnity is to be considered as the exact compensation required to restore the financial position the policy holder used to enjoy before a loss occurred.
  5. Subrogation: When a policy holder has taken a policy, he has the right to get a claim from the insurer.Similarly, the insurance company must have the subrogation right to claim the amount they paid for you from any other source or third party who is the probable cause of such incident. 
  6. Contribution: An insured person may have the right to take insurance of a property from two or more insurance companies not necessarily with same degree of risks. Similarly, when any unprecedented event occurs the insurance companies must pay an equitable proportion of the claim amount to the insured person.

Different types of Insurance policies:

Typically, insurance policies can be categorized as below;

  • Whole life policy;
  • Term Insurance;
  • Endowment policy;
  • Annuity policy;
  • Investment linked policy;
  • Children’s deferred annuity insurance;
  • Health insurance;
  • Critical illness insurance;
  • Fire insurance;
  • Marine insurance;
  • Automobile insurance;
  • Property insurance;

Conclusion: Since, every property that we own in our life is very precious to us we must ensure that a risk mitigation mechanism in the form of insurance policies must be in place so that we can at least minimize the financial loss without compromising with our various aspirations in life.

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