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Introduction to Insurance

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We often hear the term Insurance.

But What exactly is Insurance?

The definition says:

a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

So, from the definition, it is apparent:

1. Insurance is an arrangement (a contract actually)

2. Between you and the insurance company

3. That you pay premium amount at agreed terms

4. and in case of a specified loss, the insurance company pays you back.

There are two common insurance policies that every individual should have: Term Insurance and Health Insurance

Endowment Policy vs Term Policy + Mutual Fund

An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death.

Typical maturities are ten, fifteen or twenty years up to a certain age limit.

Some policies also pay out in the case of critical illness.

Conceptually Endowment plans are not wealth builders.

Endowment plans put their money into debt instruments and we already know debt is not a wealth maker in the long term.

They often invest in approved debt securities such as Government Securities where the yield is low.

Endowment plans have higher expenses, sometimes more than those of ULIPs.

They do include insurance cover but that does not come for free either.

Do not mix insurance with wealth building.

The best thing to do is a to take a good term policy and a good multicap mutual fund.

This way, you get better returns from MF + best coverage from term policy for the same premium that we generally pay for the Endowment policy.

Is buying insurance online safe?

The insurance policy terms and services will be the same for the policy when sold by an agent or online.

However, buying insurance online will be cheaper because the company can save money that will have to be given to the selling agent.

Further, you can pay for the premium using Credit Cards amongst other traditional channels.

Insurance News

  • March 22, 2018: Business Line: Canara Bank HSBC OBC Life Insurance Company (CHOICe) expects to wipe out its accumulated loss of ₹250 crore in fiscal 2018-19 and declare its maiden dividend in FY 2019-20 on the back of robust growth in business, said Anuj Mathur, CEO of CHOICe.

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