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Insurance as an Investment

Insurance as an Investment

While planning your personal finances, insurance is a must thing to be considered. This is because it helps you to be prepared for the uncertainties that might come your way. But in addition to acting as a reliable financial assistance tool, it is also considered to be an optimal source of investment. How do you ask? Here’s how Insurance as an investment aids you in a plethora of ways:

Top 5 benefits

1. Safety shield for your family’s future

We invest to receive returns that will be beneficial for us and our loved ones in the future. Insurance serves the same purpose but in a better way. Money invested in insurance policies is at extremely low risk and is sure to offer returns. In your absence, your family can utilize this money to make up for the financial loss and maintain a stable, healthy lifestyle.

2. A financially independent retired life

A few insurance policies provide for a fixed monthly, quarterly or yearly income after the premium payment period is over. Investing in such policies can help you to have a happy, secured, and financially independent life after retirement.

3. Tax benefits

Under section 80C of the income tax act, insurance policies are subjected to provide tax benefits. Tax benefits up to Rs. 1.5 lakhs can be availed by an individual. This clears the picture of insurance as an investment as it helps in saving money on taxes.

4. Disciplined and regular investments

A policyholder needs to compulsorily pay the premiums at fixed intervals, as per the frequency opted by him. This helps in maintaining and inculcating a habit of regular investment for a long period of time. Insurance doesn’t just instill discipline but
also makes you plan your expenses in a better way and relieves you of the burden for future savings to some extent.

5. Dealing with financial liabilities

During mishaps, the situations already are too exhausting and stressful. In such times, insurance can relieve you from worrying about financial issues. It can help you cover up for your losses and pay back loans. It helps in preventing any disturbances in your financial plans, avoids draining you of your savings, and assists you in maintaining a healthy lifestyle.

When it comes to choosing the right insurance plan, keeping in mind the investment aspect, ULIPs can be a great choice. This is because they are flexible enough and allow you to smartly invest your money in the right places such as equity shares, debt instruments, and bonds.

ULIPs prove to be an extremely advantageous financial tool as they help the investor in tax saving, ensure regular saving and investments with good returns. Along with investments you can also enjoy the benefits and security of an insurance plan. The investor also does not have to put in much effort in monitoring the market conditions.

This work is done by the investment managers at the company. All the investor has to do is select the kind of investment he wants to make, the rest is taken care of.

As an individual, it is our responsibility to invest and arrange for our family’s well being and safe future. Insurance serves the function of a smart investment, helps us save, and ensures financial security. This makes it an essential part of our monetary and stability planning.

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Insurance Act 1938

Insurance Act 1938

There are several acts introduced to guide and govern the functioning of Insurance institutions. From the abundance of acts present, one of the prominent ones is the Insurance Act, 1938. This article will discuss the Act highlighting some important points such as its history and features it holds.

What is The Insurance Act 1938 and its history?

The insurance act was introduced to regulate the activities of insurance companies. This act prevents companies from being speculative and forces them to act on sound actuarial principles. Before the original insurance act 1938, a life insurance company’s act was passed in 1912. The drawback of this act was that there was discrimination between Indian and foreign companies.

Indian companies were required to make deposits with the government. But the foreign companies were exempted from this rule. This led to resentment amongst the Indian companies against the British government. The success of the independence and non-cooperation movement helped the Indian insurance companies. The Indian insurance companies then became the face of the swadeshi movement. The total insurance business grew from 22.44 crores in 1914 to 298 crores in 1938. India also saw an increase in the number of insurance companies from 44 to 176 in the same period.

A committee was appointed by the government of India to study this problem and find solutions. The result of this investigation was the Insurance Act 1938. It was the first comprehensive legislation passed by the government. This act governed both life and non-life companies providing strict control over the insurance business.

Features 

The salient features of the Insurance Act 1938

  • Forming a department of insurance to overlook all the insurance business.
  • Mandatory registration of insurance companies.
  • Compulsory submission of annual financial returns of insurance companies.
  • A provision for initial deposits was made to allow only genuine companies in the insurance sector.
  • Other important provisions such as the prohibition on rebate, restriction on licensing, and commission payment were introduced in order to instill professionalism into the business.
  • Insurance companies had to go through a periodical evaluation to assess their financial stability.
  • Policies with a standardized format were introduced.
  • Certification of the premium tables through an actuary was made compulsory.

After the implementation of the legislation-

  • Promotions were given to those who were worthy.
  • Speculative insurance was eliminated and
  • Reductions in bankruptcies of insurance companies were notices.

In due course of time, various shortcomings were found in the insurance act. Changes regarding deposits, rebates, and investments were made. But this boom of the insurance industry was hampered by the partition in 1947. Many insurance companies were affected due to the widespread bloodshed. Amongst this situation, the foreign companies found it difficult to function. By 1955 the share of foreign companies in new business was a mere 7 percent. Out of 105 foreign companies, only 15 remained.

In 1950, further amendments were made to the insurance act. The superintendent of insurance was re-designated as the controller of insurance. The controller of insurance even had the authority to check the books of the insurer. Amends were made in provisions relating to investments in life funds. Investments in government and approved securities were brought down to 50%. Restrictions on the nature of investments in balanced funds were imposed. Only 15% of total funds were allowed to be invested in the open market. The Insurance act 1938 played a major role in making insurance a public utility service.

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Importance of Insurance

Importance of Insurance

The world we live in is extremely uncertain. A risk at any step we take is unknown. All of us, our families, and our businesses are exposed to different types of risks at different levels. Although these risks cannot be predicted or controlled, insurance acts as a precaution and protection for us against the unexpected.

Therefore, the importance of insurance is non-negligible and unsurpassed. It has evolved as a tool for safeguarding the financial interest of people and their well-being.

6 Top Importance of Insurance 

Let’s have a deeper look at the importance of Insurance and know why is it necessary to have one:

1. Provides financial safety and security

It gives financial support to businesses and individuals against the losses or damages that might occur in the future. It acts as a shield against events that might disrupt the financial planning of an individual or organization.

2. Acts as a financial resource

Insurance generates long-term financial resources from the premiums it collects. Since these policies are payable in the future, the funds generated through premiums are invested and utilized in the economic development of the country. Roads and other infrastructures that help in nation-building are constructed out of these funds. These investments result in the growth of employment opportunities in turn helping the capital formation in the country.

3. Encourages savings

Life insurance policies can be looked upon as a channel of investment and saving too. These policies ensure regular savings, that are invested in the form of a premium. A lump sum of these premiums altogether is paid to the insured on the maturity of the contract. This is a way in which one can collect a good amount of funds that can be in the future, utilized by the insured or his/her family members.

4. Builds confidence in individuals to take up risks

Insurance provides an aid for the losses that might occur if one starts or expands his business. This develops a sense of security in an individual and gives him a motivation for undertaking the risk. It also gives a push to invest more funds and ensure proper working of the business, overcoming any financial constraints that the business might suffer otherwise.

5. Provides support during Medical Emergency

Health issues are a very big concern for most people today. Medical expenses and costs of treatments are rising day by day and are high enough to drain a person of his savings. Medical insurance provides coverage for various illnesses. Nevertheless, nothing can compensate for the immense mental pressure in such situations. Financial support can ease things to some extent.

6. Distribution of risk

The basic role of insurance is to shift the risk from the insured to the insurer. The insurer collects funds, in the form of premiums from a huge number of people. Whenever there is a requirement of funds by an insured, it is compensated from the funds collected. This helps in the distribution of risk amongst a huge population.

In a country like ours where savings and security both need to be insured, insurance has proved to be of great help. It channelizes people’s savings and offers them security. The vast development of the insurance industry and proper utilization of its funds have also created a huge number of employment opportunities. Thus, insurance has proved to a blessing and support for the economy too.

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How are insurance premiums calculated?

How are insurance premiums calculated?

When you get an insurance policy, the company charges you a certain amount of money against the coverage. This money that you pay to the company is called the insurance premium. You might pay the premium every month or on a semi-annual basis, depending on your insurance policy.

While purchasing any policy, we do not have much control over the insurance premium amount as it is determined by the insurance firms. However, the question- how are insurance premiums calculated and what are its key deciding factors might have crossed your mind.

Well, we have an answer for that! Let’s understand the cost of the premium and how it is calculated.

How much does an insurance premium cost?

Insurance premiums have no set cost. Various insurance policies have different insured sum and coverage and hence can have varied premiums. For instance- a 5 lakh health insurance policy will have a lower premium as compared to a 50-lakh health insurance policy. But this doesn’t mean that you opt for insurance with the lowest premium. Assess your need and financial condition before opting for insurance.

How are insurance premiums calculated?

Insurance companies consider different factors while calculating premiums. Here are a few of them:

1. Age

Age is a major factor while deciding insurance premiums. People below the age of 40 generally have lesser health problems and generally get the best premiums. People above the age of 40 have more health issues like diabetes, arthritis, cancer, etc, and pose a higher risk to insurers. Hence these people are usually charged higher premiums by the insurer.

2. Type of coverage

You are offered several add-on coverages like zero depreciation, maternity cover, critical illness covers, etc. on specific insurance policies. The more comprehensive coverage you opt for, the more expensive the premium will be. For instance- if you have a car insurance policy that covers liability only, it will have a cheaper premium. If the same car policy accounts for comprehensive coverage, liability, and medical payments the premium will automatically be higher.

3. Amount of coverage

The sum insured under the insurance coverage is a key factor in deciding premiums. If your total insured amount is less, the premiums for that insurance will generally be lower and vice versa. For instance- if you purchase a home loan of Rs 60 lakh, it will have a high premium than a Rs 25 lakh home loan.

4. Actuarial tables

Actuaries are business professionals that assess the risk of financial loss using mathematics and statistics. Insurance companies hire these actuaries to predict the likelihood of an insurance claim. After the assessment of the possible losses, actuaries produce something called an actuarial table that is provided to an insurance company that uses it to set policy premiums.

5. Whole life vs Term life insurance

An insurance policy that provides coverage until the death of the insured is called a whole-of-life policy. A term insurance policy offers cover only for a fixed number of years. Whereas, a whole life policy offers coverage generally across the expected life span of the individual.

For whole life insurance, the premium is paid generally for the first 10-15 years while the coverage is offered for the entire life of the policyholder. The payment of premium is limited to a specific period and therefore the premium charged for whole life insurance is on the higher side. On the other hand, term life insurance provides coverage for a specified period like 5 years or 10 years wherein the premium amount to be paid is fixed. This results in the premium charges being lower.

6. Number of dependents on the insured

Children and parents are dependent on the earning member of the family who is also the policyholder. The number of family members dependent on the insured plays a role in calculating the premium amount. A higher number of dependents means more protection is needed which translates to a higher premium.

7. Occupation

Your occupation might play a role in calculating the premiums if you decide to purchase an insurance policy. Some occupations such as pilots, soldiers, offshore oil or gas industry workers are deemed riskier than others by the insurance companies. If you are a professional working in the above-mentioned fields, you can expect higher premiums compared to those working in a comparatively safer environment.

8. Income

One of the vital factors to determine the amount of premium is the sum an individual earns. Premiums are to be paid regularly to the insurer without any defaults. Insurers evaluate your income to determine if you will be able to afford regular premium payments.

9. Debts

If you have ongoing loans, mortgages, or have unpaid credit card bills, the insurance institutions consider these things as debts against the insured. These debts might have a direct impact on the premium you pay for the policy. There might be situations, where you might even be denied to avail a policy because of these debts. It’s therefore suggested to clear them in order to get a policy as per your requirement.

10. Operating cost of the firm

Insurance companies spend a huge amount of money to maintain an online presence through ads on various websites and social media. The insurance companies promote their product i.e. the policies through these channels. The money spent on this comes under marketing expenses. The insurance company also bears non-marketing expenses like maintenance, rent, salaries, legal fees, agent’s commission, etc. These marketing and non-marketing expenses make up the total operational costs of the insurance firm. This operational cost affects the insurance premiums the company charges to the policyholders.

11. Interest on investments

As an added investment, insurance firms invest the policyholders’ premiums in bonds, stocks, real estate, etc. The insurance company earns a specific rate of interest on the invested funds. This interest earned on these investments may vary as per the fluctuations in the market. It is yet another important factor that is considered while deciding the insurance premium.

These factors affecting the insurance premiums vary from policy to policy. Understanding how insurance premiums are calculated will help you immensely when you are looking for your next insurance policy. To get the best coverage for you and your family at affordable prices, you must take the time and effort to do online as well as offline research.

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Group Personal Accident Insurance

What is Group Personal Accident Insurance? (Explained)

The employees are the greatest asset of a company. However, they’re exposed to several risks. It’s one of the organizations’ responsibilities to look after the employee’s well-being. Group personal accident insurance offers the company a policy to protect its employees from any accident that occurs at the workplace. Under this policy, the employees are absolved of all the medical expenses incurred due to injury or death in case of any mishappenings.

Group personal accident insurance is a win-win for both the company and the employees. While the employees are protected under the policy, the company gets a group discount based on the number of employees in the company.

Benefits of Group Personal Accident Insurance

Here are some of the benefits of the Group Personal Accident Insurance policy-

  • The policy fulfils the basic responsibility of any organization is to protect the employees against any unfortunate events.
  • It assures quick claim settlement for the employee.
  • It also provides hassle-free documentation.
  • It is great for the reputation of an organization as it gives satisfaction to the workers that the company ensures their protection.
  • All the expenses related to hospitalization and medicines due to the injury get reimbursed.

Coverage offered by Group Personal Accident Insurance

A group personal accident insurance coverage varies according to the terms of the plan.
Here’s what the coverage includes-

  • The family receives the insured compensation in case of the death of the insured.
  • In case of permanent or total disability caused to the employee which continues for over 12 months, the entire compensation is paid to the person insured.
  • If the employee gets disabled partially, a certain percentage of the sum insured is paid.
  • Weekly benefits are provided to the employee who is fully disabled. It is offered to compensate for the loss of salary as the employee would be unable to work.
  • If hospitalization is necessary for the employee, ambulance charges are covered under this policy.
  • The policy will reimburse all the expenses that arise during the transportation of the insured person’s mortal remains to the ground or home.
  • In case of broken bones, the insured gets compensated a certain amount of money.
  • The policy covers the educational costs of the children if the insured dies or has a permanent disability.
  • In case of permanent disability, the insured may need some changes in lifestyle such as modifications to his car and home which is compensated by the policy.

Group Personal Accident Insurance Exclusions

Group personal accident insurance protects all employees against most accident scenarios. But there are some exclusions that the policy does not cover. Some of the notable exclusions are:

  • When the injury is self-inflicted.
  • Injuries caused due to illegal or criminal acts.
  • Injuries/damages sustained under the influence of alcohol, drugs, or other intoxicating substances.
  • Death or injury due to illness or disease during childbirth or pregnancy.
  • Accident cases involving nuclear weapons or armed forces.
  • Accidents involving a violation of the law.
  • Suicides or attempted suicides.

Accidents not only cause financial trouble for the employee’s family, but they may also affect the company in a way. It’s thus advisable to insure your employees with Group Personal Accident Insurance and provide them with the financial security they deserve.

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Functions of Insurance

Learn about insurance

Functions of Insurance

During our lifetime, we’re exposed to several unexpected circumstances. These situations have a direct influence on our family and finances. All of this eventually piles up and becomes a prominent source of stress if not taken care of. Insurance comes to the rescue in such cases, the various functions of insurance revolve around taking care of the possible losses that might occur to an individual or business.

Buying insurance helps to attain security against emergencies and accidents. You have to pay small periodic amounts of money as a premium against coverage of a huge expected or unexpected loss.

These insurance premiums are also considered as the policyholder’s share in compensating the losses, although the most part is taken care of by the insurance company.

What are the Functions of Insurance?

  • Insurance helps to spread the loss over several policyholders who are exposed to the same risk.
  • The principle behind insurance is to share the loss of each member of the society based on the probability of loss to their risk.
  • It is a method to provide financial security against losses to the insured.

 

Functions of insurance are further classified into two categories-

  1. Primary Functions
  2. Secondary Functions

Primary Functions of Insurance

1.) Certainty

Better planning and administration can reduce the uncertainty of the loss you may suffer. But we can always be prepared for all the risks which we may encounter. There is always an uncertainty of when it will occur, how much loss will be incurred? This is where insurance provides you with the certainty of payment in case of a loss. The insurance company charges you a periodic premium in exchange for providing this certainty.

2.) Protection

Insurance protects you from the probable chances of loss. Nobody knows when or how much of a loss may occur. On the occurrence of it, there is a high possibility for an individual to fall into debt. The insurance guarantees payment in case of a loss. It protects you and your family from all the sufferings which may be caused. The insurance cannot prevent the risk but can provide financial aid when a mishap happens.

3.) Risk-Sharing

The loss arising from the risk is uncertain. Investing in insurance minimizes the financial pressure as all the insured individuals share the risk by paying the premium that acts a compensation for the insured individual who suffers a loss.

Secondary Functions of Insurance

Here are some secondary functions of insurance listed below-

1.) Prevention of Loss

The insurance company joins hands with other institutions which are engaged in preventing the losses of society. Reduction in loss will lead to lesser payments in premium. This means you can save more while purchasing a policy. Lesser premium invites more and more opportunities. So, the decreased premium ensures that people from various strata of society can avail of insurance easily. The insurance provides financial assistance to organizations like

  • Hospitals and testing centres
  • Fire brigade
  • Educational institutions
  • Any other organizations which are helping people recover from losses from death or damages

2.) Capital

Insurance provides capital essential for the growth of society. The funds collected from the policyholders are invested in a productive channel. With the help of investment in insurance, debts are minimized to a great extent. Industries, businesses, and individuals are benefited from the investment and loans of the insurers.

3.) Efficiency

Investing in insurance eliminates worries of losses incurred on the occurrence of death and destruction of property. This can make a person and his family worry less about the future. Such people can also devote their time and effort for better achievement for themselves and society. It enhances the efficiency within a person and also the society.

4.) Economic Progress

The insurance protects people from huge losses of damage, destruction, and death. It gives them the initiative to work hard for the betterment of society.

Insurance as a tool not just offers financial stability but contributes greatly towards the well-being of individuals. Considering the salient features mentioned above and the myriad of benefits insurance offers, it is the perfect arsenal you can choose to safeguard yourself from the uncertain risks of the future. So it would be wise to avail one today!

Author Bio

This article is written by Team InsuranceLiya.com, an independent website that writes about insurance, finance, health, and more. Our writers have a wealth of knowledge, experience, and degrees in the fields of insurance, finance, economics, and beyond.

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Digitization of Insurance

digitization of insurance

Digitization of Insurance (Advantages and Trends)

Like all other sectors and industries, the evolution of the online world has been a driving force for bringing advancements in the insurance industry too. The new technologies are changing the way customers and insurers interact with each other. The digitization of insurance has eased up things for the customers and also benefited the insurers in multiple ways. In the article, we’ll talk about the new trends that this digital revolution has brought into the world of insurance and how has it proven to be a boon for everyone.

Digital Trends in the Industry

The Digitization of insurance has revolutionized the entire insurance industry. The implementation of digital factors has brought about changes that have improved user experience for the insurance holders. Here are a few of the digital trends that the industry is witnessing:

1.) Online Purchase of Insurance

The facility to be able to buy insurance online has eased up things for several people. Now, people can get insured from the comfort of their homes or wherever they want. The need to meet the agents in person has been eliminated. They can read about the various policies available online and choose the one that suits their needs the best. People do not even need to take time out of their schedule to meet or talk to the insurance providers. Over the internet, they can buy insurance whenever they get time.

2.) Artificial Intelligence (A.I)

A personalized experience is what customers look forward to. The advent of Artificial intelligence has made customizing unique experiences for customers possible for insurers. Besides this, AI also takes care of the demand for high-speed and quick claim settlements along with improving the underwriting processes. AI also enables the generation of more accurate data within a less span of time.

3.) Role of social media

The insurance industry has seen tremendous growth in the past few years, and social media has played a vital role in that. Advertising over social media has made it possible for insurers to catch the attention of the youth and explain to them the importance of insurance. Social media has become one of the platforms through which customers can research on insurance companies, their offerings and also read reviews.

4.) Chatbots

AI Chatbots quickly generate the answers to the frequently asked questions. Most of the insurance companies on their websites or apps have activated Chatbots. This helps the customers to save time and get more information quickly. It also increases the scope for the customers to go through the various policies and products offered by the insurance company.

5.) IoT or Internet of things

IoT is an interconnected network of digital devices enabling insurers to take initiatives to improve their services. Through this technology, insurers can get access to a huge amount of data related to the policyholder’s and their target audience’s life. This can help them create new products and make changes as per their consumer’s requirements.

Advantages of Digitization of Insurance

Insurance companies know that utilizing the latest technologies and tools is the best to provide an exceptional experience to their customers. Let’s look at the few advantages that digitization has to offer:

1.) Cost Reduction

Digital processing has helped in cutting the brokerage cost. It also aids in cutting the cost of advertising, operating expenses, and infrastructural costs. This is because digital advertising is a lot less costly than traditional advertising and since everything is now digitally done, insurers can reduce their amount spent on infrastructure and other aspects and in turn lower the operating cost as a whole.

2.) Assures Safety

As the insurance industry is eventually going digital, the chances of loss of the policy papers or other documents are eliminated to a great extent. Also, the documents, policy papers, or forms that are submitted online can be accessed from anywhere and at any time. Digital transactions also reduce the chances of information leaks and miss-selling.

3.) Convenient Transaction

Modern customers require quick and easy settlements of their needs and responsibilities. Online transactions make settling various insurance-related processes convenient. Things like the renewal of policies, payment of premiums, filing claims, and all the other procedures are simplified which enriches the overall experience of the customer.

4.) Post-Sales Services

The general impression that the customers are neglected after the policy has been sold has changed because of digitization. Post-sales processes such as raising claims, etc. have become hassle-free and less time-consuming for the customers. Insurance companies are also actively using their social media handles and other digital channels for promoting customers to give their feedback.

They are using these digital means to bring into notice their customer’s grievances and resolve them effectively. All of these have helped the insurers to provide better post-sales services.

As compared to the traditional ways, digitization of insurance has improved the communication between the insurer and the insured. It has led the insurance companies to accept the consumer-first business approach which has resulted in the growth of the insurance sector as a whole.

Author Bio

This article is written by Team InsuranceLiya.com, an independent website that writes about insurance, finance, health, and more. Our writers have a wealth of knowledge, experience, and degrees in the fields of insurance, finance, economics, and beyond.

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Deposit insurance Coverage

Deposit Insurance Coverage by DICGC

How safe is your deposit if your bank undergoes a crisis? Who guarantees that you won’t lose the money deposited in the bank? Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI is set up to insure the deposits held by the banks. They also guarantee credit facilities. Deposit insurance coverage is a facility that provides protection cover against losses to deposit holders in banks in case the bank fails financially. Amount to be paid as a premium or this policy is covered entirely by the insured bank for all the depositors.

Types of banks insured by DICGC

  • All commercial banks including local area banks and regional rural banks are insured.
  • Branches of foreign banks functioning in India.
  • All-State, Central, and first cooperative banks are covered by the DICGC.

What is insured under the deposit insurance coverage?

  • Savings deposits, term deposits, and RDs are insured by DICGC.
  • Government and inter-bank deposits.
  • Foreign Government deposits.
  • Single and joint accounts to be separately insured, as per RBI.

Exclusions by DICGC

  • Deposits of State co-operative banks and state land development banks are not covered.
  • Primary cooperative societies are not insured under the Deposit Insurance Coverage.

What is the maximum amount insured?

₹ 5 lakhs is the maximum limit up to which a particular depositor is insured. It is applicable for both principal and interest amounts held by the depositor.

How to know whether your bank is insured by the DICGC or not?

Printed leaflets are given by the DICGC while registering the banks as insured banks. These leaflets display information concerning the protection offered by the corporation to the depositors of the insured banks. In case of doubt, the depositor should make a specific inquiry to the bank in this regard.

Under what circumstances is the DICGC liable to pay?

DICGC is liable to pay when a bank goes into liquidation. DICGC is liable to pay the claim amount within two months from the date of receiving the claim from the liquidator. The liquidator is required to disburse the claim amount to every insured depositor.

In case of a merger, the DICGC pays the insured bank the difference between the full amount of deposit or the limit of insurance cover, whichever is less.

It also makes payment of the amount received by the bank under the reconstruction scheme. The amount can be claimed within two months from the date of receipt of the claim list from the transferee bank.

Deposits held in the same name or are under a similar type of ownership at the same bank are added together before deposit insurance is determined. The deposit insurance coverage limit is applied separately to the deposits in the respective banks if any depositor has holdings in more than one bank.

Before opening a bank account, it’s imperative to ensure that the bank is protected under deposit insurance coverage. As with this insurance coverage, your hard-earned money and savings are protected from any kind of unwanted losses.

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Definition of insurance

Definition of insurance

To choose the right kind of insurance for yourself, you must first understand what insurance is. It is necessary for you to know the right definition of insurance and its components. In this article, we’ll be offering an in-depth detail of insurance which will definitely give you a clear picture of it!

Let’s dive in.

What is the definition of insurance?

Insurance is a contract of indemnity, in which an individual or an organization receives financial compensation or reimbursement against the losses from the insurer. It is a shield used to protect the insured against the risk of monetary losses due to the damage caused. Insurance covers the policyholder for the losses incurred to him, his property, or any third party that might have suffered in the event.

There is a huge number of insurance policies offered by various insurance companies that provide coverage for different risks. Each of these policies have different terms and conditions that differ depending on the type of insurance and the company offering it. With such varied options available in the market, through deep research one can easily find a policy that suits his needs and fits his budget.

Components of insurance

There are a few components that are common for every kind of insurance policy. They are:

1. Premium

Premium is the amount that the policyholder has to pay as a consideration for the coverage offered in the policy. It is regarded as the insured’s share for covering up the losses. The insurance premium is determined by calculating the risk covered. The higher the chances of risk, the higher goes the premium.

2. Policy limit

It is the maximum amount that the insurer will pay for the damages caused to the insured on the occurrence of the event mentioned in the policy. Policies that have a high limit, have higher premiums. For life insurance policies, the maximum amount that the insurer will pay is known as the face value. This amount is paid to the beneficiary on the happening of the contingency, that is the death of the insured.

3. Deductibles

While understanding the terms and conditions of the policy, an individual must be extremely careful and attentive while going through this part. A deductible is the amount of loss that the insured is required to pay out of his pocket. These losses are excluded and not compensated under the insurance cover.

These deductibles differ from policy to policy and insurer to insurer. Generally, policies with a large number of deductibles carry less premium value as the policyholder has to pay a major part of the amount from his side.

The most common types of personal insurance policies that are offered by almost all insurance companies are auto, health, home, and life insurance policies. Out of these car or auto insurance is a compulsion by law. Moreover, there are other policies offered by financial institutions that cover the risks of businesses too! From your health to your profession, insurance has got you covered in every aspect of your life!

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Characteristics of Insurance

Characteristics of Insurance

There are a number of things written and said about insurance that highlight the benefits, features, and more of the money lending facility. However, out of the most discussed topics, one of the topics that is not talked much about is the characteristics of Insurance.

We might all be aware of what insurance is, what it offers, and why we should opt for it, but how many of us really know its characteristics? Not many. Having knowledge about the characteristics helps to get a better understanding of insurance which today has become a must-have.

So, without further ado, let’s explore the characteristics of insurance.

1. Insurance is a personal contract

Insurance is a contractual agreement between the insurance company and the policyholder. This contract is bound by certain obligations that both parties are required to fulfil to keep the contract legal. These obligations state that the insured is required to pay a premium to the insurer regularly. Furthermore, the insurance provider needs to compensate the insured for the losses mentioned in the policy. Also, the insurance contract is non-transferable without the consent of the insurance policyholder.

2. Sharing of risk

Premium paid by the policyholders is used by the insurance company to recover the losses incurred by insured individuals. It helps in reducing the burden of heavy losses on a single individual in case of any contingency. This way risk of a single individual is pooled among different individuals and its effect of the loss is minimized.

3. Cost Of Risk

The cost of risk is the value of an object which is insured under the insurance policy. Insurance companies properly evaluate the value of the subject matter before entering into a contract. Proper valuation of the insurance object helps the insurer in the calculation of the right premium amount to be paid by the insured. The higher the risk associated with the insured object, the higher will be premium charged and vice versa.

4. Insurance gives assurance of compensation

Insurance policies assure the policyholder that compensation will be provided to you in case of losses and damages. Insurance companies guarantee the protection of the policyholders and assure to bring them back on their feet post the damages. This sense of relief for the insurer motivates them to invest in insurance policies.

5. Insurance contracts are executory

This means that compensation is paid to the insured only on the occurrence of the contingency. The agreement states that the insured is liable to claim compensation from the insurer only if he incurs losses. The insurer is not liable to pay any compensation in case there are no losses to the insured.

6. Subject to disclosure

This means that any misrepresentation or concealment of facts from either the insurer or the insured will make the insurance contract void. The policyholder is required to disclose full information regarding the insurance object without any omission or mistakes. Similarly, insurance companies must explain clearly the terms and conditions of the insurance contract to policyholders.

Insurance contributes greatly to the well-being of individuals. The characteristics of insurance mentioned above and a variety of benefits, make insurance a wise investment.

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