INSURANCE TYPES AND IT’S BENEFITS

DIVERSE COVERS AND ADVANTAGES OF INSURANCE

A strategy in which an entity or the state commits to providing indemnity for specified loss, damage, illness, or demise in exchange for the payment of a predetermined premium.

"Numerous recent borrowers secure insurance against unemployment or illness."

Varieties of Insurance:

1. Automobile Insurance:

   Vehicle insurance is the coverage scheme that meets the needs of the majority. Owning car insurance is an affirmative decision. However, individuals may not perceive the necessity until faced with an accident. The fundamental question arises: Why invest in car insurance? The answer lies in the fact that vehicle insurance shoulders the costs of all damages that may befall your car, making it a prudent investment.

   Attributes of Car Insurance:

   Acquiring car insurance encompasses coverage for various incidents:
   • Repair Expenses
   • Vehicle parts replacements
   • Damages due to own errors
   • Damages due to third-party errors
   • Fire and theft
   • Riot and assault
   • Flood and hailstorms

   Types of Car Insurance:

   Different forms of car insurance coverage in Pakistan include:

   • Third-party Liability Only Cover: This type of vehicle insurance coverage provides benefits such as the cost of repairs/replacement of the damaged vehicle of third parties, hospitalization and treatment expenses of third parties, and liabilities arising from the death of third parties. According to the Motor Vehicles Act, third-party vehicle insurance coverage is a prerequisite for driving on the roads. The sum insured should be in accordance with the driving circumstances and sufficiently high to avoid personal payments on your part.

   • Collision Damage or Own Damage Cover: Opting for collision damage vehicle insurance coverage reimburses the cost of repairs to your damaged vehicle. The calculation of collision coverage cost considers the vehicle's age and Insured Declared Value (IDV). The IDV is based on the market value of the vehicle. When a claim is filed under collision coverage policy, the maximum amount payable under the plan is provided by the IDV minus accumulated depreciation. If you have financed your car, it's advisable to retain collision cover.

   • Personal Accident Cover: Choosing personal accident vehicle insurance coverage safeguards the owner-driver by covering medical expenses after an accident.

   • Zero Depreciation Protection: This coverage is typically introduced as an add-on to car insurance contracts in India. In case your car is damaged and you need to replace the parts, the insurer will consider the depreciated value of the parts for claim settlement. A Zero Depreciation Cover ensures you receive the full claim amount without accounting for any depreciation in costs.

   • Comprehensive Car Insurance: This type of coverage provides the highest level of protection, including third-party liability, damage to the own vehicle, personal accident cover, and all non-collision damage such as storms, floods, fire, and theft. You can further enhance a comprehensive car insurance contract with a selection of add-ons.

2. Life Insurance:

   Life coverage can be availed to protect the family in the event of sudden death or demise during the policy term. It provides the family with a lump sum when the insured person meets an untimely demise, aiding the grieving family in coping with potential financial struggles.

   Term insurance is the most prevalent form of life insurance, where you make payments for the pre-determined term. If you pass away within the term period, the insured amount is given to the family. However, it remains with the insurance company if you survive the term policy's tenure. Unlike term plans, whole life insurance or endowment plans also pay upon maturity if you outlive the term. Some benefits plans or post-retirement plans also carry insurance coverage. One option is to pay the premium up to a certain time, and you receive the insured amount upon maturity. The family receives the money in the event of the insured's untimely death.

3. General Insurance: Non-life insurance policies encompass general insurance contracts that include coverage for home, auto, education, etc., as detailed below:

   1. Health Insurance: You can purchase health insurance for yourself or your family, including your spouse, parents, siblings, and children. Some insurance companies have partnerships with hospitals, allowing you to use your policy number for cashless services in network hospitals. In other cases, you can claim reimbursement for hospitalization and treatments. Do carefully examine the coverage for the type of illness/disease/medical condition. Also, verify what types of expenses are covered.

   2. Education Insurance: Education insurance can also function as an investment scheme. You pay premiums when your child is 18 years old or reaches a certain age determined by the insurance contract. You receive a lump sum with specific guidelines that you can use for a child's educational purposes and nothing else. Use an education calculator to estimate the amount you may need when the child grows up. Such calculators are often provided by insurance companies or insurance offering websites. The parent/temporary guardian/legal guardian is the policy owner.

   3. Home/Property Insurance: If man-made or natural disasters damage your valuable property, this policy can cover the financial loss and provide financial assistance. Losses due to theft, floods, or any other incidents can be mitigated.

Advantages of Insurance: An insurance contract serves various roles and comes with numerous benefits. Below are some of its most crucial advantages, along with some secondary ones, and the rest are additional ones. The benefits of Insurance are:

1. Provides Security: Security coverage lessens the impact of accidents in perilous situations. It provides financial compensation during financial emergencies, not only shielding the insured from financial difficulties but also aiding in alleviating mental strain arising from it.

2. Instills Confidence: Insurance coverage imparts a sense of assurance to the policyholders. The insured pays a small portion of the income for this confidence that will assist in the future. Thus, there is a certainty of desirable financial support against the premium. It will protect the policyholder when faced with accidents, risks, or any uncertainties.

3. Risk Sharing: The collaborative nature of insurance policy operation makes it a beneficial arrangement. An insurer wouldn't be able to pay from one's capital. An insurance company pools in collective risks and charges because it covers a vast number of risk-exposed individuals. The payout to the person who claims insurance coverage is out of this pool. Thus, all policyholders share the risk of the individual who actually experienced the loss.

4. Value of Possibility: Insurance policy assesses the volume of risk and also anticipates various causes for it. It assesses the sum for insurance coverage and the payment amounts on a risk value basis. It protects against unforeseen events and major calamities.