What we mean by Insurance
Insurance is defined as the
equitable transfer of the risk of a loss, from one entity to another, in
exchange for a amount called premium,
and can be thought of as a guaranteed small loss to prevent a large, possibly
devastating loss. An insurer is a company selling the insurance; an insured
is the person or entity buying the insurance. The insurance rate is a
factor used to determine the amount to be charged as premium. It involves risk management i.e., the practice of appraising
and controlling risk.
Types of Insurance
Any risk that can be quantified can
potentially be insured. Specific kinds
of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail
which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many
different types of insurance that exist. A single policy may cover risks in one or more
of the categories set out below. For example, auto insurance would typically
cover both property risk (covering the risk of theft or damage to the car) and
liability risk (covering legal claims from causing an accident). A homeowner's
insurance policy typically includes property insurance covering damage to the
home and the owner's belongings, liability insurance covering certain legal
claims against the owner, and even a small amount of coverage for medical
expenses of guests who are injured on the owner's property. Business insurance
can be any kind of insurance that protects businesses against risks. Some
principal subtypes of business insurance are (a) the various kinds of professional liability insurance,
also called professional indemnity
insurance, which are discussed below under that name; and (b) the
business owner's policy (BOP), which bundles into one policy many of the kinds
of coverage that a business owner needs, in a way analogous to how homeowners
insurance bundles the coverages that a homeowner need.
In India, the various insurances’ coverage
available could be broadly covered under two heads, namely
Life Insurance and
General Insurance (or non-life
insurance).
General insurance or non-life insurance policies, including automobile and homeowners
policies, provide payments depending on the loss from a particular financial
event. General insurance typically comprises any insurance that is not
determined to be life insurance.
Life Insurance
Life insurance provides a monetary
benefit to a decedent's family or other designated beneficiary, and may
specifically provide for income to an insured person's family. Life insurance policies often allow the option
of having the proceeds paid to the beneficiary either in a lump sum cash
payment or an annuity.
Annuities provide a stream of
payments and are generally classified as insurance because they are issued by
insurance companies and regulated as insurance and require the same kinds of
actuarial and investment management expertise that life insurance requires.
Annuities and pensions that pay a benefit for life are sometimes regarded as
insurance against the possibility that a retiree will outlive his or her
financial resources. In that sense, they are the complement of life insurance
and, from an underwriting perspective, are the mirror image of life insurance.
Certain life insurance contracts
accumulate cash values, which may be taken by the insured if the policy is
surrendered or which may be borrowed against. Some policies, such as annuities
and endowment policies, are financial instruments to accumulate or liquidate wealth
when it is needed.
In many countries, such as the U.S.
and the UK, the tax law provides that the interest on this cash value is not
taxable under certain circumstances. In India, the maturity values are tax
free. The premium paid in a year gets
tax benefits up to a certain limit. This
leads to widespread use of life insurance as a tax-efficient method of saving
as well as protection in the event of early death.
Auto insurance
Auto insurance protects you against
financial loss if you have an accident. It is a contract between you and the
insurance company. You agree to pay the premium and the insurance company
agrees to pay your losses as defined in your policy. Auto insurance provides
property, liability and medical coverage:
- Property coverage pays for damage to or theft of
your car.
- Liability coverage pays for your legal
responsibility to others for bodily injury or property damage.
- Medical coverage pays for the cost of treating
injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is
comprised of six different kinds of coverage. Most countries require you to buy
some, but not all, of these coverages. If you're financing a car, your lender
may also have requirements. Most auto policies are for six months to a year.
Your insurance company should notify
you by mail when it’s time to renew the policy and to pay your premium.
Home insurance
Home insurance provides compensation
for damage or destruction of a home from disasters. In some geographical areas,
the standard insurances exclude certain types of disasters, such as flood and earthquakes
that require additional coverage. Maintenance-related problems are the
homeowners' responsibility. The policy may include inventory, or this can be
bought as a separate policy, especially for people who rent housing. In some
countries, insurers offer a package which may include liability and legal
responsibility for injuries and property damage caused by members of the
household, including pets.
Health Insurance
Health
insurance policies by the National Health Service in the United Kingdom (NHS)
or other publicly-funded health programs will cover the cost of medical
treatments. Dental insurance, like medical insurance, is coverage for
individuals to protect them against dental costs. In the U.S., dental insurance
is often part of an employer's benefits package, along with health insurance.
Disability Insurance
- Disability
insurance policies provide financial
support in the event the policyholder is unable to work because of
disabling illness or injury. It provides monthly support to help pay such
obligations as mortgages and credit cards.
- Disability overhead
insurance allows business owners to
cover the overhead expenses of their business while they are unable to
work.
- Total permanent
disability insurance provides benefits
when a person is permanently disabled and can no longer work in their
profession, often taken as an adjunct to life insurance.
- Workers'
compensation insurance replaces all or
part of a worker's wages lost and accompanying medical expenses incurred
because of a job-related injury.
Casualty Insurance
Casualty insurance insures against
accidents, not necessarily tied to any specific property.
- Crime insurance is a form of casualty insurance that covers the
policyholder against losses arising from the criminal acts of third
parties. For example, a company can obtain crime insurance to cover losses
arising from theft or embezzlement.
- Political risk
insurance is a form of casualty insurance
that can be taken out by businesses with operations in countries in which
there is a risk that revolution or other political conditions will result
in a loss.
Property Insurance
Property insurance provides
protection against risks to property, such as fire, theft or weather damage.
This includes specialized forms of insurance such as fire insurance, flood
insurance, earthquake insurance, home insurance, inland marine insurance or boiler
insurance.
- Automobile
insurance (Auto or Motor Insurance) is
probably the most common form of insurance and may cover both legal liability
claims against the driver and loss of or damage to the insured's vehicle
itself. In some jurisdictions, bodily injury compensation for automobile
accident victims has been changed to a no-fault system, which reduces or
eliminates the ability to sue for compensation but provides automatic
eligibility for benefits. Credit card companies insure against damage on
rented cars.
- Driving School
Insurance provides cover for any
authorized driver whilst undergoing tuition, cover also unlike other
motor policies provides cover for instructor liability where both the
pupil and driving instructor are equally liable in the event of a claim.
- Aviation insurance insures against hull, spares, deductibles, hull
wear and liability risks.
- Boiler insurance (also known as boiler and machinery insurance or
equipment breakdown insurance) insures against accidental physical damage
to equipment or machinery.
- Builder's risk
insurance insures against the risk of
physical loss or damage to property during construction. Builder's risk
insurance is typically written on an "all risk" basis covering
damage due to any cause (including the negligence of the insured) not
otherwise expressly excluded.
- Crop insurance "Farmers use crop insurance to reduce or
manage various risks associated with growing crops. Such risks include
crop loss or damage caused by weather, hail, drought, frost damage,
insects, or disease, for instance."[12]
- Earthquake
insurance is a form of property insurance that
pays the policyholder in the event of an earthquake that causes damage to
the property. Most ordinary homeowners insurance policies do not
cover earthquake damage. Most earthquake insurance policies feature a high
deductible. Rates depend on location and the probability of an earthquake,
as well as the construction of the home.
- A fidelity bond
is a form of casualty insurance that covers policyholders for losses that
they incur as a result of fraudulent acts by specified individuals. It
usually insures a business for losses caused by the dishonest acts of its
employees.
- Flood insurance protects against property loss due to flooding.
Many insurers in the U.S. do not provide flood insurance in some portions
of the country. In response to this, the federal government created the National
Flood Insurance Program which serves as the insurer of last resort.
- Home insurance or homeowners' insurance: See "Property
insurance".
- Landlord insurance is specifically designed for people who own
properties which they rent out. Most house insurance cover in the U.K will
not be valid if the property is rented out therefore landlords must take
out this specialist form of home insurance.
- Marine insurance and marine cargo insurance cover the loss or damage
of ships at sea or on inland waterways, and of the cargo that may be on
them. When the owner of the cargo and the carrier are separate
corporations, marine cargo insurance typically compensates the owner of
cargo for losses sustained from fire, shipwreck, etc., but excludes losses
that can be recovered from the carrier or the carrier's insurance. Many
marine insurance underwriters will include "time element"
coverage in such policies, which extends the indemnity to cover loss of
profit and other business expenses attributable to the delay caused by a
covered loss.
- Surety bond
insurance is a three party insurance
guaranteeing the performance of the principal.
- Terrorism insurance provides protection against any loss or damage
caused by terrorist activities.
- Volcano insurance is an insurance that covers
volcano damage in Hawaii.
- Windstorm insurance is an insurance covering the
damage that can be caused by hurricanes and tropical cyclones.
Liability Insurance
Liability insurance is a very broad
superset that covers legal claims against the insured. Many types of insurance
include an aspect of liability coverage. For example, a homeowner's insurance
policy will normally include liability coverage which protects the insured in
the event of a claim brought by someone who slips and falls on the property;
automobile insurance also includes an aspect of liability insurance that
indemnifies against the harm that a crashing car can cause to others' lives,
health, or property. The protection offered by a liability insurance policy is
twofold: a legal defense in the event of a lawsuit commenced against the
policyholder and indemnification (payment on behalf of the insured) with
respect to a settlement or court verdict. Liability policies typically cover
only the negligence of the insured, and will not apply to results of wilful or
intentional acts by the insured.
- Directors and
officers liability insurance protects an
organization (usually a corporation) from costs associated with litigation
resulting from mistakes made by directors and officers for which they are
liable. In the industry, it is usually called "D&O" for
short.
- Environmental
liability insurance protects the
insured from bodily injury, property damage and cleanup costs as a result
of the dispersal, release or escape of pollutants.
- Errors and
omissions insurance: See
"Professional liability insurance" under "Liability
insurance".
- Prize indemnity
insurance protects the insured from
giving away a large prize at a specific event. Examples would include
offering prizes to contestants who can make a half-court shot at a
basketball game, or a hole-in-one at a golf tournament.
- Professional
liability insurance, also called professional indemnity insurance,
protects insured professionals such as architectural corporation and
medical practice against potential negligence claims made by their
patients/clients. Professional liability insurance may take on different
names depending on the profession. For example, professional liability
insurance in reference to the medical profession may be called malpractice
insurance. Notaries public may take out errors and omissions
insurance (E&O). Other potential E&O policyholders include,
for example, real estate brokers, Insurance agents, home inspectors,
appraisers, and website developers.
Credit Insurance
Credit insurance repays some or all
of a loan when certain things happen to the borrower such as unemployment, disability,
or death.
- Mortgage insurance insures the lender against default by the borrower.
Mortgage insurance is a form of credit insurance, although the name credit
insurance more often is used to refer to policies that cover other
kinds of debt.
Other types of Insurance (Most of them are not provided
by Indian Insurance Companies on routine or regular way)
- Collateral
protection insurance or CPI, insures
property (primarily vehicles) held as collateral for loans made by lending
institutions.
- Defense Base Act
Workers' compensation or DBA Insurance provides coverage for civilian workers hired by the government to
perform contracts outside the U.S. and Canada. DBA is required for all
U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees
or subcontractors hired on overseas government contracts. Depending on the
country, Foreign Nationals must also be covered under DBA. This coverage
typically includes expenses related to medical treatment and loss of
wages, as well as disability and death benefits.
- Expatriate
insurance provides individuals and
organizations operating outside of their home country with protection for
automobiles, property, health, liability and business pursuits.
- Financial loss
insurance protects individuals and
companies against various financial risks. For example, a business might
purchase coverage to protect it from loss of sales if a fire in a factory
prevented it from carrying out its business for a time. Insurance might
also cover the failure of a creditor to pay money it owes to the insured.
This type of insurance is frequently referred to as "business interruption insurance."
Fidelity bonds and surety bonds are included in this category, although
these products provide a benefit to a third party (the
"obligee") in the event the insured party (usually referred to
as the "obligor") fails to perform its obligations under a
contract with the obligee.
- Kidnap and ransom
insurance protects individuals against various financial and physical (both
life and accidental health issues) risks involved.
- Locked funds
insurance is a little-known hybrid
insurance policy jointly issued by governments and banks. It is used to
protect public funds from tamper by unauthorized parties. In special
cases, a government may authorize its use in protecting semi-private funds
which are liable to tamper. The terms of this type of insurance are
usually very strict. Therefore it is used only in extreme cases where
maximum security of funds is required.
- Nuclear incident
insurance covers damages resulting from
an incident involving radioactive materials and is generally arranged at
the national level.
- Pet insurance insures pets against accidents and illnesses - some
companies cover routine/wellness care and burial, as well.
- Pollution Insurance, which consists of first-party coverage for
contamination of insured property either by external or on-site sources.
Coverage for liability to third parties arising from contamination of air,
water, or land due to the sudden and accidental release of hazardous
materials from the insured site. The policy usually covers the costs of
cleanup and may include coverage for releases from underground storage
tanks. Intentional acts are specifically excluded.
- Purchase insurance is aimed at providing protection on the products
people purchase. Purchase insurance can cover individual purchase
protection, warranties, guarantees, care plans and even mobile phone
insurance. Such insurance is normally very limited in the scope of
problems that are covered by the policy.
- Title insurance provides a guarantee that title to real property is
vested in the purchaser and/or mortgagee, free and clear of liens or
encumbrances. It is usually issued in conjunction with a search of the
public records performed at the time of a real estate transaction.
- Travel insurance is an insurance cover taken by those who travel either
within country or abroad and covers certain losses such as medical
expenses, loss of personal belongings, travel delay, personal liabilities,
etc.
Mortgage insurance is an insurance policy which compensates lenders or investors for losses
due to the default of a mortgage loan. Mortgage
insurance can be either public or private depending upon the insurer. The
policy is also known as a mortgage indemnity guarantee (MIG). Mortgage life
insurance guarantees repayment of a mortgage loan in the event of death or,
possibly, disability of the borrower.
Accidental death and
dismemberment insurance (AD&D) is a form of insurance
covering death or specific types of injury as a result of an accident. In the
event of accidental death, this insurance will pay benefits in addition to any life
insurance held. Death by illness, suicide, or natural causes is generally not
covered by AD&D. Additionally,
AD&D generally pays benefits for the loss of limbs, fingers, sight and
permanent paralysis. The types of injuries covered and the amount paid vary by
insurer and package, and are explicitly enumerated in the insurance policy.
Assumption reinsurance is a form of reinsurance whereby the reinsurer is substituted for the
ceding insurer and becomes directly liable for policy claims. This ordinarily
requires a notice and release from affected policyholders. In the more typical
reinsurance arrangement, the reinsurer has an obligation to indemnify the
ceding insurer, which remains liable for claims on policies it has issued, and
policyholders' approval is not required.
