Complete Beginner Guide
Insurance is one of the most important tools for financial protection in modern life. Still, many people ask questions like what is insurance, why insurance is important, or is insurance really necessary. This article explains the basic concept of insurance in simple and easy-to-understand language.
What is Insurance?
Insurance is a financial risk management system. In insurance, an individual pays a small amount of money regularly, known as a premium, to an insurance company. In return, the insurance company promises to provide financial compensation if a specific loss, damage, illness, accident, or death occurs.
In simple terms, insurance helps people protect themselves and their families from unexpected financial losses. Instead of paying a large amount all at once during an emergency, insurance spreads the risk across many people.
Insurance is a way to protect yourself financially by paying a small amount today to avoid a big loss in the future.
Purpose of Insurance
The main purpose of insurance is not profit or investment, but financial security and risk protection. Insurance helps individuals, families, and businesses stay financially stable during difficult times.
- Protection from sudden and high medical expenses
- Financial support for family members in case of death
- Coverage for accidents, theft, fire, or natural disasters
- Security for business assets and income
- Peace of mind in uncertain situations
Who Needs Insurance?
One of the biggest myths is that insurance is only needed by older people. In reality, insurance is important for almost everyone who has income, responsibilities, or valuable assets.
- Salaried employees looking for financial security
- Business owners and self-employed professionals
- Young professionals starting their careers
- People with family responsibilities
- Vehicle owners as per legal requirements
Important rule: If you earn money, support a family, or own assets, insurance is necessary.
Important Insurance Terms Explained
To understand insurance clearly, it is important to know some basic terms used in almost every insurance policy.
- Premium: The amount paid by the policyholder to keep the insurance active. It can be paid monthly, quarterly, or yearly.
- Policy: A legal contract between the insurance company and the policyholder that explains coverage, terms, and conditions.
- Claim: A formal request made by the insured person or nominee to receive financial compensation after a loss or event.
- Sum Assured: The maximum amount that the insurance company will pay under a policy.
- Nominee: The person chosen to receive the claim amount in case of the policyholder’s death.
Understanding these basic insurance terms helps policyholders make better decisions and avoid confusion during claim settlement.
