Simply put, insurance is a contract between a party (the insured) and an insurance company (the insurer) that protects the party (the insured) financially in the event of a likely bad event. The insurer makes a guarantee that it will cover losses brought on by a specific incident. Simple insurance against the possibility of monetary loss due to damage
It’s easier to think of insurance’s main purpose as an investment and a way to keep your finances safe. Even though we will eventually discuss the various types of insurance and how they differ from one another, today we’ll concentrate more on the reasons why you should have insurance at all:
1) Financial stability: No matter what you do for a living or how much money you make, an unanticipated incident will affect your finances. Occasionally, such unforeseen events might leave us financially crippled for years. It’s critical to protect your assets and yourself with insurance against these unforeseen occurrences.
2) Risk transfer: The whole insurance company operates around the tenet of “risk transfer.” In exchange for financial compensation, the insured wishes to transfer the risk of a certain contingency to the insurer. Homes are insured against various losses, cars are insured against mishaps, and life insurance is available for individuals against illness or even death. In essence, you are shifting your insurer’s risk of these occurrences.
3) Future objectives: We experience a variety of life milestones, and we should celebrate them. We frequently fall short of our goals because we let unplanned expenses control our budget instead of making plans. Since you know you won’t have to pay out of pocket to cover your bills in the event of unanticipated circumstances, insurance helps you better manage your future finances.
4) Saves you money: Insurance premiums, which we’ll discuss in more detail later, may be rather expensive. All you need to know for now is that premiums are the cost of your insurance. However, insurance payments are much less expensive than the one-time payment you would be required to make in the event of an emergency, such as a broken arm or a burned-out home. Insurance is similar to purchasing a winter coat in the summer; things are less expensive when you don’t immediately require them.
5) Financial advantages: If you buy insurance properly from a good insurance company, it can offer tax advantages as well as long-term savings. Certain insurance plans with longer terms as well as income-generating insurance plans like unit-linked insurance plans (ULIPs) can significantly increase the value of your investments and offer you insurance coverage. The tax advantages provided by certain sections of the Income Tax Act were introduced as inducements to encourage people to purchase insurance policies.
6) Government mandates: You should frequently obtain insurance because you are required to. Let’s be clear: in order to increase adoption, the government has always supported the insurance company and taken steps to raise awareness of the advantages of insurance among the general public. Only 25% of the nation’s population has any type of insurance, despite the fact that the insurance business has expanded from one original company to a total of 57 public and private companies that sell insurance products today. In order to minimize extra problems, the government implemented various insurance policies that are mandatory in nature. The Motor Insurance Act of 1988 regulates auto insurance as one of these examples.