Insurance is a way of protecting yourself against risk. Insurance helps mitigate financial risks. Insurance is primarily availed to keep uncertainty at bay.
A body or a person or an organization that offers insurance is known as insurer or Insurance Company. The individual or body or organization that is availing insurance is known as the insured.
The insurance contract involves the insurer assuming surety in exchange for premiums. The insurer guarantees payment of sum assured. The loss may or may not be financial in nature, but it is reducible to financial terms and includes something under which the insured has an assumable interest established by ownership, pre existing relationship and possession.
The insured would receive a contract called the insurance policy. Policy contains details of conditions and circumstances under which the insurer would compensate for damages (Settle the claim). The amount charged by insurers for the coverage set under the insurance policy is called ‘premium’. If the insured suffers damage to the assets that are covered under the policy, then the insured must submit a claim to the insurer for loss fulfillment.
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SEE ALSO: What Is Insurance?
Life insurance is a contract between the insured and insurer, under which the insurer assures to pay a sum of money in exchange for periodic premiums, upon the death of the insured. Depending on the policy, events like terminal illness or critical illness is also covered (Riders in life insurance). The policy holder must pay premiums, either regularly or one time lump sum.
If the insured happens to survive the term, then there is no survival benefit paid out by the insurer. Term insurance is a pure risk protection plan. There are various riders that can be availed along with term insurance.
As term insurance is life insurance, the applicant must undergo a certain set of medical tests to ensure he/she enjoys good health. If you are a smoker or a drinker, then you must disclose this to the insurer at the time of availing insurance. You would still be insured, but at a slightly higher cost.
This is because insurers feel that the risk of insuring a person who is an alcoholic and / or smoker is relatively high.
The table below shows the average premium cost for term insurance availed by a 25 year old who doesn’t smoke and drink:
The below table shows average premium cost for ULIP policy for 20 years:
Below table summarizes the cost of money back policy:
The below table summarizes the cost involved in whole life insurance:
SEE ALSO: What Is Life Insurance?
The table below summarizes the cost involved in Child Insurance
Following are the things you must look for in an insurance company:
1) Higher Persistency Ratio: This ratio reflects the insurer’s record of customer retention. Higher the persistency ratio, better the insurer. This is because the ratio indicates that more policyholders are continuing with the insurer by renewing policies.
2) Less Number Of Complaints: The Insurance Company is good if there are fewer claim and non claim related complaints. This must not be the only criteria, but must also be considered. This factor reveals insurer’s history of dealing with handling customer complaints.
3)Time To Settle Claims: Lower the claim settlement time, better the Insurer. An insurer is considered good if 80% of the claims are settled within 30 days of claim submission.
4) Increase In Premiums With Age: When you buy a health insurance, you have to renew each year. You must check for the premiums over the next 10 years before choosing an insurer. Choose the insurer that offers better coverage at low premiums.
5) Check For The Percentage Of The Premium Paid Out In Claims: An ideal incurred claims ratio is 75% to 85%. A low ratio does not bode well for the insured while a high ratio of 100% shows that the Insurance Company has paid out the entire sum collected as premiums.
6) Make Sure That Your Insurer Is Financially Sound: Insurers must maintain a minimum solvency ratio of 150% or 1.5 times the solvency margin. A higher solvency ratio reflects better financial strength and the company’s ability to pay all its liabilities.
7) Claim Settlement Ratio: Higher the claim settlement ratio, better the company. This ratio depicts the number of claims settled against the number of claims filed. What’s the use of availing an insurance policy by paying all those premiums and the claim not being settled? Ensure that your insurer has a high claim settlement ratio.
The below table shows the claim settlement ratio of various insurers:
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