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Introduction To Insurance

What Is Insurance And Why Is It Important?

The basic principle of insurance is to provide protection to a person or an entity from any sort of financial loss caused due to events like fire, accidents, hospitalizations, earthquakes, etc. Let us understand this with the help of an example: Ram went for a movie with his friends. Just when he reached the theatre and parked the car along the roadside, a coconut fell on the car, damaging its front windowpane. Ram understood this would be a bit heavy on his pocket, but he did not worry as he had an insurance policy in place. He knew his insurance company would bear the expenses of the damage. In such types of uncertain scenarios there is only one thing common, and i.e., Financial Loss. Insurance companies compensate for such kinds of financial losses.

What Is An Insurance Contract?

It is a contract between the insured and the insurer. Now you must be wondering, “who is an insurer and who is an insured?” The answer to your question is: An insured or a policyholder is a person or an entity that buys an insurance policy and gets covered against financial losses. While an insurer or an insurance company is an entity that provides insurance and undertakes to compensate for the losses

How Does A Contract Come into Existence?

The process of applying for insurance is called a proposal. When one party proposes, and another accepts the proposal then it is a valid contract. So, who do you think makes the proposal to whom? The buyer of the policy makes the proposal to the insurance company! When applying for insurance the first thing you do is get the proposal form of a particular Insurance company, after filling in the requested details you send the form to the company, sometimes along with a premium cheque. This is your offer. If the insurance company accepts your offer and agrees to ensure you this is called acceptance. In some cases, the insurer may agree to accept your offer after making some changes to your proposed terms, for example: charging a double premium for your chain–smoking habit.

Types Of Insurance

General Insurance

Life Insurance

How are we different from Insurance Agents?

A lot of times people get confused between Insurance Brokers and Insurance Agents (other intermediaries). Let us now learn the difference between the two:

INSURANCE BROKER	OTHER INTERMEDIARIES
An insurance broker represents his client	An agent represents his insurance company
A broker is a corporate structure who is licensed under strict guidelines from IRDAI	Usually an Individual or Bank's/ Insurer's Representative
The minimum capital requirement for a direct broker is Rs 50 Lakh	An agent does not have any such requirement
Brokers are required by IRDAI to have adequate infrastructure and trained manpower	Anyone with an academic qualification of 10+2 can become an agent
Strict monitoring by IRDAI on a regular basis to ensure best and ethical practices	There is no such monitoring for agents
Can place business with any of the life and non-life insurance companies	Can represent only one life and one non-life insurance company
Offers professional services like risk management, developing appropriate insurance coverage at correct premium rates	Offers product driven marketing
Above all, assists client actively at the time of claims	No such assistance is guaranteed
A broker is like an insurance company. Globally, many brokerage firms are bigger than insurance companies!	Is a part of the marketing team of an insurance company