It is a protective cover, a sort of defense mechanism resorted to; so as to counter the conditions arising out of different kinds of unexpected losses. Insurance involves an agreement between two parties. On one side we have the insurer or the service provider; on the other side there is the individual or group to be ensured. The agreement or transaction which involves legal and detailed documentation revolves around a certain sum of money paid by the insured individual or group on guarantee that he/it will be duly compensated in situations of loss.

As part of possible protection against hazards of loss, the insurance service provider transfers the contingency amount to the insured individual or group, so that the group or individual is adequately resourced to fight the existing conditions arising on account of loss. In lieu of the service, the beneficiary is supposed to pay a certain sum of money as premium to the insurance provider. Rate of premium includes in itself the anticipated cost of loss and cost entailed by the insurer as a result of administration of the policy.

As a financial activity insurance entails collection of fund from various insured bodies, people or groups of people so as to provide for them during times of loss. An insurance policy which comes as a financial transaction agreed upon between the insurer and the insured outlines value of the policy, rates of premium, modes of the premium payment, nature of the policy and above all the risk it is catering to. The given term of insurance, whether it is term based or lifelong, whether or not it will lead to asset accumulation are also outlined in detail.

Risks to be compensated or insured should bear the element of insurability. In this regard quantification or evaluation of the risk plays an important part as far as insurability is concerned. If the insured risk is high on its probability, the rate of premium is also subsequently high. Risks include loss due to death, work oriented injuries, automobile accidents, loss of life and property in the event of fire or earthquake.

Insurance companies dealing with loss handling and extending claim to the respected beneficiaries make money by underwriting and investing the premium received. Underwriting involves selection of risk, its evaluation and decision on its premium. In this connection it is worth mentioning that certain insurance policies make for due saving and insurance generation for the policy holders also.

Types of insurance

According to the categories of risks, insurance can be categorized into various types:

Life Insurance
It provides for monetary benefits to the deceased’s family. Usually the named beneficiary receives the stipulated sum of money. In keeping with its various clauses life insurance may also cater to funeral expense and income generation for the deceased’s family. Certain life insurance policies also add to the asset generation often ensuring annuity or pension to a person on his retirement.
Burial Insurance
With its origin to be traced in the ‘guilds’ of the Middle Ages, burial insurance is extended to the deceased’s family for covering his funeral expenditures.
Health Insurance
It compensates for medical expenditure undertaken by individual. The insurer geared to the facility of health care structures its financial base of premium rate, and underwriting in keeping with its overall health care package and targeted group of customers.
Property Insurance
It is geared to providing financial assistance seeking to recuperate from damages caused to property and vehicles; by the agents such as theft, fire, flood, terrorism, crashing, volcano, shipwreck and windstorm. Property insurance also involves guarantee of protection against acts of fraud and sometimes cater to time bound damages caused to ships and submarines as part of marine insurance.
Auto Insurance
Also known as vehicle insurance, auto insurance makes for the insurance of cars and commercial vehicles of different types. Auto insurance provides financial protections to the insured vehicle against possible damage caused by accidental collision and theft. It also relates to situations of liability arising from accidents. Apart from accidental collisions, auto insurance serves as a protective cover not only for the loss of automobiles but also damages brought about by manmade and natural disasters. Most countries have required legislations making vehicle insurance mandatory.
Liability Insurance
A home owner, an automobile owner and for that matter any property owner may come under the purview of Liability insurance if there is a legal suit filed against the respective property owner on grounds that in some way or other the insured person’s property has caused substantial damage to others.
Credit Insurance
It account for the full or partial repayment of loan when the borrower is unable to do the needful on grounds of loss of job, death or any other forms of disabilities.
Community Bound Self Insurance
In community bound self insurance, a whole group commonly bound by religion or ethnic base comes forward to support an individual who has undergone damage. It is neither contractual nor involves numerical evaluation.

Amongst various categories of miscellaneous insurances, expatriate insurance, kidnap insurance, defense insurance and collateral insurance feature.

Glossary of terms related to insurance

Insurance policy
Underlying the key aspects of an insurance; insurance policy deals with its terms and condition, the subject catering to risk management, payment of premium, modes of premium payment and how the claim is to be extended to the beneficiary. It is the basis of the contractual agreement to be entered into between the insurer and person to be ensured.
In order to be a part of an insurance agreement, after having bought a policy the person or group insured is expected to pay a sum of money to cater to the insurers’ risk management. The rate at which it is to be paid including the terms of payment is outlined in a given policy. Premium is calculated keeping in mind the element of risk involved in the event to be insured.
Usually the benefits of life and other insurance are extended to the named or entitled beneficiary whose name or names are included as the main beneficiaries.
Insurance claim
When the insurance policy matures or expires or when a person is entitled to its benefit on account of the risk suffered, the monetary benefit due of the nominee is known as insurance claim.
Death benefit
As part of a life insurance policy, the insured’s nominee is to receive the monetary benefit or death benefit in the event of death or demise of the policy holder. The said monetary benefit is known as the death benefit.
Agent/ advisor
Agent or an advisor helps to promote and sell a policy, ensuring a connection between the buyer and Insurance Company. Agents have an advisory role to play by enlightening the policy holders on its benefits, terms and conditions.
Compensation to be paid by the company to the policy holder.
Riders are due changes brought about in the insurance policy keeping in mind the interests and request of the policy holders.
They play an indirect role in determining the cost of life insurance policies. They prepare table on human mortality occurrences and that in turn determines the cost of the policy.
A Latin word ‘celui qui vit’ means when the policy owner is not entitled to the benefit or when a policy owner is not necessarily the insured.