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Role of Insurance in Current Times
Updated: May 17, 2021
The idea of ‘protection against probable risk’ never carried as much weight among our citizens earlier as it does today. The onset of COVID-19, last year, instilled a sense of fear and uncertainty, not only among individuals and families but also businesses and the overall economy. Astronomical COVID-19 treatment bills from private hospitals and the rising healthcare costs transformed people’s perceptions about ‘Insurance’.
Before we hop onto understanding Insurance policies and the impact of COVID-19 on the industry, let’s understand some basics.
Insurance: Meaning, Types & Industry Overview
(Readers aware of the basics, kindly skip this section)
Insurance is a legal contract between two parties i.e. the insurance company (insurer) and the individual (insured). Here, the insurance company promises to make good the losses of the insured on the occurrence of an uncertain event, like damage, loss or death. The insured pays a ‘premium’ in return for the promise made by the insurer.
The Insurance Mechanism
To be noted: The premium amount charged by the insurance company is determined using actuarial calculations, based on the extent of risk involved, the sum insured, the creditworthiness of the policyholder, any chronic illnesses or habits (specifically in case of health insurance), the age of the policyholder (as in case of life insurance) and various other relevant factors.
Broadly, the Insurance products can be classified into two categories:
Life Insurance: A contract very advantageous for every bread-earner of the family, life insurance assures financial protection of the dependents in an event of the untimely death of the individual. Additionally, the premiums paid towards a life insurance policy are tax-deductible under section 80C of the Income Tax Act, 1961.
Non-Life Insurance: Also known as General Insurance, this category includes several types of insurance policies for motor, health or disability, fire, marine shipments, property, etc. that aim to cover specific financial risks attached to these valuable assets. Simply, it covers anything but Life!
