In this day and age, you can find numerous insurance products in insurance marketplace. For an individual it would not be important to know, “what are the different types of insurance?” But for professionals like; financial advisors and insurance agents, it’s very important to know all the basics related to an insurance industry. It helps to build their self confidence level as well as it helps them to give professional advice to their customers. In this post, we will be discussing on fundamental types of insurance. Though, insurance market has grown up over the years but it’s still working under the same principles.
Many authorities have been established by nations to promote and regulate insurance companies linked with the insurance and reinsurance business for example in India, Insurance Regulatory and Development Authority of India (IRDA) works to protect the rights of policy holders, and also works to promote insurance industry. IRDA makes such rules and regulations that are beneficial for both insurer and insured. As mentioned above, insurance has many products but there are basically three types of insurance exist in insurance marketplace and all insurance related products come under these three fundamental types.
1. Life Insurance
Life Insurance is a type of insurance, in which insured gets coverage against death. In life insurance, two parties (Insurance Company and policy holder) sign a contract with mutual understanding. In the contract of life insurance, policy holder pays a fee called premium to get coverage against specified events, and insurer gives a sum assured in the event of loss. Nowadays, life insurance companies offer many insurance products to fulfill everyone’s needs for example term life insurance is suitable for individuals who want to protect themselves but their budget is low, permanent life insurance is best for people who seek life time protection, and in the same way endowment life insurance is appropriate for those who want to invest their money along with a life protection plan (Read: What are the different types of life insurance?)
2. Non-Life Insurance
Non-Life insurance is also known as General Insurance. This type of insurance provides coverage against loses other than death for example health insurance, home/property insurance, auto insurance, business insurance etc. In other words, you may say that all insurance products other than life protection product that provides cover against death, are non-life insurances or general insurances. Mobile or gadget insurance is also come under non-life insurance; in which policyholder gets cover against physical damage or theft for his/her electronic gadget such as mobile phone, laptop, tablet, LED TV, notebook etc. Health insurance is also categorize under non-life insurance. Health insurance policies provide cover for medical expenses incurred in a hospital for the treatment of injury or illness (See: What are the various types of health insurance policies in India).
Almost everyone (including insurance companies) is exposed to many financial risks. When an insurance company insures itself against certain risks like when claims exceed than expected limit, then it is called reinsurance. Insurance companies buy reinsurance policies from other insurance companies to bear the extra financial burden. It’s simply a risk management technique to run a company for long time. Insurance companies that give insurance to other insurance companies are called as reinsures. Here are some reasons due to which an insurance company buys reinsurance policy
- To bear the financial burden; in case claims exceed the expected limit.
- When insurance company wants to insure a large risk.