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Having an insurance is the key to sound and safe financial planning. We all have some sort of insurance but not everyone understands what the word INSURANCE means. How does it work and what are the things that should be kept in mind beforehand. For most Of the people insurance is a form of investment or a superb tax saving avenue. Many people take insurance as a tax saving thing only and do not focus on the advantages/disadvantages of it. Not exaggerating, most people don't know what it really is. All they know are the terms CAR INSURANCE, HOUSE INSURANCE, LIFE INSURANCE only.
What is INSURANCE??
Insurance is a way of spreading out significant financial risk of a person or business entity to a large group of individuals or business entities in the occurrence of an unfortunate event that is predefined. That group of individuals or business entities being the one we call INSURANCE COMPANIES. The cost of being insured is the monthly or annual amount paid to the insurance company. In the purest form of insurance if the predefined event does not occur until the period specified the money paid as compensation is not retrieved. Insurance is effectively a means of spreading risk among a pool of people who are insured and lighten their financial burden in the event of unfortunate circumstances.
Things you can get insured.
With our hard earned money we buy assets, cars, house, jewellery and many things like these. Insurance covers mostly all of these things. Plus it covers the most important thing, our life. Life insurance is the best thing a company has to offer and it helps your loved ones financially if you are gone. Potentially any risk that can be quantified in terms of money can be insured. To protect loved ones from loss of income due to immature death one can have a life insurance policy. To protect yourself and your family against unforeseen medical expenses you can opt for a Mediclaim policy. To protect your vehicle against robbery or damage in accidents you can have a motor insurance policy. To protect your home against theft, damage due to fire, flood and other catastrophes you can choose a home insurance.
Now we know what insurance is and how it can help, let us focus on buying a suitable insurance. The first step is Determining what asset or incident must be protected against loss/damage. Is it you life, health, vehicle, home? Next determine what kinds of damage or danger exactly would the assets be most probably be exposed to. This will tell you what features you should be looking for in a policy. Of course there will be losses which cannot be foreseen and the cost of dealing with them can be very high. For instance nobody can predict that they'll never suffer from critical illnesses no matter if they're perfectly healthy at present. Secondly know how much you will be charged for such services and invest accordingly.