What is an Insurance Policy?
Meaning of an Insurance Policy: – Insurance Policy is a contract in which a person or entity receives financial protection or reimbursement from an insurance company against losses. The insurance policy is a contract between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language. The company pools the risks of the customers to make the payment more affordable for the insured.
- Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.
- There many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.
- The core components that make up most insurance policies are the deductible, policy limit, and premium.
Businesses require special types of insurance policies that insure against specific types of risks faced by a particular business. For example, a fast-food restaurant needs a policy that covers damage or injury that occurs as a result of cooking with a deep fryer. An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives.
What is the need for Insurance Policy?
Insurance policies are beneficial for anyone wishing to protect his/her family, property and himself/herself from financial risk or loss: –
- Insurance policy will help you pay for medical emergencies, hospitalization, contractures and treatment of any disease, and medical care needed in the future.
- Financial loss to the family due to the unfortunate death of the sole breadwinner can be covered by insurance policy. The family can repay any loan like home loan or other loan that the insured has incurred during his lifetime.
- Insurance policies will help your family to maintain their standard of living if you are not around in future. This will help them cover the cost of running the house through an insurance lump sum payment. The sum assured will give your family some much-needed breathing space along with coverage for all expenses in case of death/accident/medical emergency of the policyholder.
- Insurance plans will help in securing your child’s future in terms of education. They will ensure that your children are financially secure by pursuing their dreams and ambitions without compromise, even when you are not around.
- Many insurance plans come with savings and investment plans along with regular coverage. These help in creating wealth/savings for the future through regular investments. You pay premiums regularly and a part of it goes to life insurance while the other part goes to savings plan or investment plan, whichever you choose based on your future goals and needs.
- Insurance policy helps to protect your home in the event of any unforeseen calamity or damage. Your home insurance policy will help you get coverage for damage to your home and pay for the cost of repairs or reconstruction, whichever is necessary. If you have coverage for valuables and items inside the home, you can purchase replacement items with a sum insured.
What are the Insurance Policy Components?
When choosing a policy, it is important to understand how insurance works. A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs. For instance, whole life insurance may or may not be the right type of life insurance for you.
There are three components of any type of insurance policy (premium, policy limit, and deductible) that are crucial: –
- Premium: – A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness. For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork.
- Policy Limit: – The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a general life insurance policy, the maximum amount the insurer will pay is referred to as the face value, which is the amount paid to a beneficiary upon the death of the insured.
- Deductible: – The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy. Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.
What are the types of Insurance?
There are various types of Insurance explained below: –
- Life Insurance: – Life insurance refers to an insurance policy or cover by which the policyholder can ensure financial independence for his family members after death. A life insurance policy helps you safeguard the financial interests of your family when you are not around. Millions of people buy life insurance for reasons that are often difficult to put into words. Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. Suppose you are the only earning member in your family, supporting your spouse and children. In such a situation, your death will destroy the whole family financially. Life insurance policies ensure that this does not happen by providing financial support to your family in the event of your passing away.
- Motor Insurance: – Motor insurance refers to policies that provide financial assistance in case of accidents involving your car or bike. It is mandatory to take motor insurance policy for all vehicle owners as per Motor Vehicle Act 1988. It safeguard against accidental damage or theft of the vehicle and also safeguard against third party legal liability for bodily injury and/or property damage.It also provides Personal Accident cover for owner driver/occupants of the vehicle. Motor insurance can be availed for three categories of motorized vehicles, which include: –
- Car Insurance: – Individually owned four wheelers are covered under such a policy.
- Two-Wheeler Insurance: – Individually owned two wheelers including bikes and scooters are covered under these plans.
- Commercial Vehicle Insurance: – If you have a vehicle that is used commercially, you need to get insurance for the same. These policies ensure that your business automobiles remain in the best shape possible, reducing losses significantly.
- Health Insurance: – Health insurance refers to a type of general insurance policy, which provides financial assistance to policyholders when they are admitted to hospitals for treatment. Health insurance is a type of insurance that covers medical expenses that arise due to an illness. These expenses could be related to hospitalisation costs, cost of medicines or doctor consultation fees.Additionally, some plans also cover the cost of at-home treatment before hospitalization or after discharge. With the rising medical inflation in India, buying health insurance has become a necessity. However, before proceeding with your purchase, consider the different types of health insurance plans available in India.
- Travel Insurance: – Travel Insurance is a type of insurance policy that covers different risks while travelling. It covers medical expenses, lost luggage, flight cancellations, and other losses that a traveller can incur while travelling. While talking about the different types of insurance policies, one must not forget to know more about travel insurance plans. Such policies ensure the financial security of the traveler during the journey. Hence, when compared to other insurance policies, travel insurance is a short-term cover. Depending on the provider you choose, travel insurance can provide financial support at times, such as during baggage loss, trip cancellations and more. Take a look at the different types of travel insurance plans available in the country: –
- Domestic Travel Insurance: – This is a type of travel insurance policy that protects your finances while traveling within India. However, if you plan to step out of the country for a vacation, such a policy will not provide any assistance.
- International Travel Insurance: – If you are going out of the country, make sure you choose an international travel insurance policy. It allows you to cover unforeseen expenses that may arise during your travel such as medical emergencies, loss of luggage, loss of passport, etc.
- Home Holiday Insurance: – When you are traveling with family, your home remains unsecured. The potential for theft is always significant, which can lead to significant loss. Thankfully, with home vacation insurance plans, which are often included in travel policies, you are financially protected from such incidents as well.
- Property Insurance: – Property insurance policy provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance. Any building or immovable structure can be insured through property insurance plans. It can be your residence or business place. If there is any damage to such property, you can claim financial assistance from the insurance provider. Keep in mind that this type of plan also financially protects the contents inside the property.
- Bite-size Insurance: – A Bite-sized Insurance Policy covers specific needs for a comparatively shorter duration. Such policies are available at a lower premium and can often be purchased from online insurers using a smartphone without the need for documentation or tests. Bite-size insurance policies refer to pouch insurance plans that reduce your financial liability for a very limited period of time, usually up to a year. These insurance plans allow you to protect your finances from specific damages or perils. For example, a particularly bite-sized insurance may offer a casualty cover of Rs. 1 lakh for a year. You can choose this policy when you think you may be particularly susceptible to accidental injuries. Another example is insurance cover for specific diseases. For example, if your area is prone to water-borne diseases like cholera, you can choose a policy that covers the treatment of cholera and all associated costs for a period of 1 year.
- Mobile Insurance: – Mobile insurance policies provide protection against a variety of perils and damages to the phone. Given that smartphones are electronic devices, they could be prone to software failure which can often render the device useless. Besides internal damage, external damage can also occur due to various reasons. Due to the rising prices of mobile phones today and their many applications, it has become imperative to insure the device. Mobile insurance policy allows you to recover the money you spent on repairing your phone in the event of accidental damage. Also, you can make the same claim in case of phone theft, which makes it easy to replace the handset with a new one.
Insurance Policy companies in India
Following are the best Insurance Companies in India: –
- Life Insurance Corporation of India: – Life Insurance Corporation of India popularly known as LIC is the largest life insurance company in India owned by the Government of India. Life Insurance Corporation of India is an Indian statutory insurance and investment corporation. It is under the ownership of Ministry of Finance, Government of India. LIC, one of the top 10 insurance companies in India, came into existence in the year 1956. LIC makes insurance accessible to every individual in any corner of the country with 2048 branch offices, 113 divisional offices, 8 regional offices and 1381 satellite offices. At present, LIC’s total assets under management is INR 3,111,847 crore (USD 450 billion).
- Max Life Insurance Company: – Max Life Insurance Company Limited is a life insurance company in India with a joint venture between Max India Ltd and Axis Bank The company is a subsidiary of the publicly listed Max Financial Services and is the largest non-bank private-sector life insurer in India. Established in the year 2000, Max Life Insurance Company is India’s largest non-bank private sector insurance policy company. Max Life Insurance Company is a joint venture between Max India Limited, a multi-commercial Indian corporate, and Mitsui Sumitomo Insurance Company, a Japanese insurance company. It is one of the fastest growing insurance companies in India and the assets under management of Max Life have now touched the Rs 50,000 crore mark.
- HDFC Life Insurance Company: – HDFC Life Insurance Company Ltd. is a long-term life insurance provider with its headquarters in Mumbai, offering individual and group insurance services and incorporated on 14 August 2000. HDFC Life Insurance Company is a joint venture between HDFC Limited, one of India’s top insurance policy companies, a leading housing finance institution in India, and Standard Life Aberdeen, a global investment company. Established in the year 2000, HDFC Life offers a wide range of insurance and investment solutions to various customer segments. HDFC Life’s products include Protection, Pension, Savings, Investment, Health along with Children and Women plans. The company also provides an option of customizing the plans, by adding optional benefits called riders, at an additional price. The Company has categorised its product portfolio covering five principal segments across the individual and group categories namely participating, non-participating protection term, non-participating protection health, other non participating and unit-linked insurance products.
- ICICI Prudential Life Insurance: – ICICI Prudential Life Insurance Company is promoted by ICICI Bank Limited and Prudential Corporation Holdings Limited. ICICI Prudential Life Insurance, you pay premiums for a specific term and in return, we provide you with a Life Cover. This Life Cover secures your loved ones’ future by paying a lump sum amount in case of an unfortunate event. Established in the year 2000, ICICI Prudential Life is one of the best insurance company in India, which is today present across the country with its strong bancassurance channel and multiple distribution channels. The total assets under the management of the company are INR 2,231.71 billion.
Insurance Policy companies in USA
Following are the best Insurance Companies in United States of America: –
- Preston & Grafton Insurance Agency: – Preston & Grafton Insurance Agency is the leading provider of ERIE insurance in Pittsburgh and all surrounding communities. With three convenient locations in Squirrel Hill, Mount Lebanon and Wexford. Preston & Grafton Insurance Agency offers a broad assortment of products and services to accommodate individuals, families and businesses of all shapes and sizes. The Preston & Grafton Insurance Agency offers an extensive assortment of products and services to accommodate individuals, families, and businesses of all shapes and sizes. We provide a complete collection of Home, Auto, Life, and Commercial Business Insurance products jam-packed with extra features for each and every one of our customers’ individual needs.
- Berkshire Hathaway: – Berkshire Hathaway is a holding company for several businesses, including GEICO and Fruit of the Loom. GEICO is a wholly owned subsidiary of Berkshire Hathaway that provides coverage for more than 24 million motor vehicles owned by more than 15 million policy holders as of 2017. GEICO writes private passenger automobile insurance in all 50 U.S. states and the District of Columbia. It is run by Chair and CEO Warren Buffett. The Government Employees Insurance Company is an American auto insurance company with headquarters in Chevy Chase, Maryland. It is the second largest auto insurer in the United States, after State Farm. Berkshire Hathaway is headquartered in Omaha, Neb., and was originally a company consisting of a group of textiles milling plants. It has market capitalization of $636 billion.
- Cigna: – Cigna is an American multinational managed healthcare and insurance policy company based in Bloomfield, Connecticut. Cigna Medicare and Medicaid products and health, life and accident insurance coverage primarily in the U.S. and offers to individuals in selected international markets. It has market capitalization of $81 billion. Individual and family medical and dental insurance plans are insured by Cigna Health and Life Insurance Company (CHLIC), Cigna HealthCare of Arizona, Inc., Cigna HealthCare of Illinois, Inc., and Cigna HealthCare of North Carolina, Inc. Group health insurance and health benefit plans are insured or administered by CHLIC, Connecticut General Life Insurance Company (CGLIC), or their affiliates. Group Universal Life (GUL) insurance plans are insured by CGLIC.
- Humana: – Humana Inc. is a for-profit American health insurance company based in Louisville, Kentucky. In 2021, the company ranked 41 on the Fortune 500 list, which made it the highest ranked company based in Kentucky. It has been the third largest health insurance in the nation. Humana, Inc. is a health care company that provides a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong wellness. The company operates its business through the following segments: – Retail, Employer Group, and Health and Wellness Services. It has market capitalization of $59 billion.
Largest Insurance Companies by Market Capitalization
- Health Insurance and Managed Health Care Companies: –
|S.No.||Company Name||Market Capitalization|
|1.||United Healthcare (UNH)||$393 billion|
|2.||CVS (CVS)||$106 billion|
|3.||Anthem (ANTM)||$96 billion|
|4.||Cigna (CI)||$80 billion|
|5.||Humana (HUM)||$59 billion|
|6.||Centene Corporation (CNC)||$43 billion|
|7.||Molina Healthcare (MOH)||$15 billion|
|8.||Bright Health Group (BHG)||$9.7 billion|
|9.||MultiPlan Corporation (MPLN)||$4.7 billion|
|10.||Alignment Healthcare (ALHC)||$4.2 billion|
- Non-Health Insurance Policy Companies: –
|S.No.||Company Name||Market Capitalization|
|1.||Berkshire Hathaway (U.S.)||$636 billion|
|2.||Ping An Insurance (China)||$166 billion|
|3.||AIA Group (Hong Kong)||$154 billion|
|4.||China Life Insurance (China)||$114 billion|
|5.||Allianz (Germany)||$104 billion|
|6.||Cigna (US)||$81 billion|
|7.||AXA (France)||$62 billion|
|8.||Humana (U.S.)||$59 billion|
|9.||Zurich Insurance (Switzerland)||$59 billion|
|10.||Munich (Germany)||$39 billion|