Last Updated on January 24, 2023
Insurance works as a financial cover to mitigate the loss of finance in the event of any uncertainty. There are certain risks that can’t be avoided and insurance companies provide insurance according to the nature of the risk. Hence, there are various types of insurance available to provide financial protection from those risks.
Under these types of insurances the companies have device distinct policies which provide financial protection against uncertainty. Different companies have different terms and conditions mentioned under these insurance policies.
Types of Insurance
Personal Insurance
These insurance provide protection against different personal uncertainties which will convert into cause of financial burden or financial loss due to death, injuries, critical health issues, medical treatment, accidents and all type of perils that will harm the human life. Personal Insurance are of two categories:
1. Life Insurance
The subject matter of life insurance is human beings. The insurer in consideration of a premium undertake a promise to pay a fixed amount of compensation at the time of death of the insured person, or at the expiry of the life insurance policy period. There are types of life insurance that provide protection to the family at premature death or gives adequate amount at old age when earning capacities are reduced.
2. Health Insurance
In this type of insurance, the insurance companies agree to undertake a guarantee of compensation for medical expenses in case the insured person falls ill or has an accident which leads to hospitalization of the insured. For the purpose, different types of health insurance available in the market.
Generally, insurance companies have tie-ups with the leading hospitals so cashless treatment to the insured is provided. In case the companies don’t have tie-ups with the hospitals. The insurance company will reimburse the cost of expenses incurred by the insured during the treatment.
General Insurance
These types of insurance contains those insurance which does not relate to human life. The policies fall under general insurance usually covers the financial loss occur due to uncertainties arises in the course of consumption of things which provide utility to people. General insurances are as follows:
1. Marine Insurance
The marine insurance is done for the ship voyages into the sea. It defines as a contract between the insurer and the insured whereby the insurer or the insurance company promises to compensate the insured in a manner and to the interest both agreed upon, against marine losses, incident to marine or sea voyages.
The subject matter of marine insurance policy includes insurance of hull, cargo, freight, and liability of transport vehicle during the marine journey. Marine insurance may be done for stages by different insurance companies as there are various stages included in the voyage from cargo uploading to safely docking of the marine vessels on ports.
2. Fire Insurance
The fire insurance is done for the protection of property, materials, or assets from the loss cause due to fire. The insurance policy is taken against the goods or property of the insured in the event of loss by fire. The loss may be from incidental fire due to short-circuit, hit by lightning, explosion, or any other cause. Compensation is only paid if the loss is occur due to peril mentioned under the policy and agreed upon by both the parties.
The insurance company appoints an evaluator, who analyze the damage to the property caused by fire and try to figure out the origin of the fire. If the fire is caused due to the negligence of the insured or due to insufficient arrangements of security to prevent fire, then the insurance companies may not compensate for damages.
3. Automobile Insurance
The automobile policy provide a financial cover against the damage to the automobile due to accidents. It covers insurance of cars, bikes, buses, and trucks, or any other vehicle excluding aircraft, rockets, etc. The compensation is provided by the insurance company in the event of damage to the vehicle due to road accidents, collision of vehicle, theft, loss or damage due to any natural calamity.
The insurance companies have tie-ups with the automobile companies and insurance policy may be offered at the time of purchase of a new vehicle. The conditions of the insurance policy may be different for the distinct policyholders.
Before insuring the person’s demographics, proper legal documentation, driving history, type of vehicle, and other requirements are analyzed, and accordingly premium amount is charged.
4. Cattle Insurance
The cattle insurance is done to provide financial loss cover in the event of death of the Cattles. It includes cows, goats, camels, dogs, bulls, elephants, and all those domestics animals from which humans earn their livelihood.
Insurance company charge premium according to the type of cattle and reimburse a fix policy amount agreed-upon at the time of the death of the cattle. The insurance may also cover for the loss to cattle due to injury which leads to permanent damage to the cattle.
Death due to natural cause, negligence, war, or any disaster is not accounted for a claim by the insured as these are not treated as perils and exclude from the insurance policy.
5. Crop Insurance
The crop insurance is done to provide financial safety against damage of crop grown by the farmer. Loss to crops may occur due to any natural disaster, adverse seasons, crop diseases, hail-storm, fire, damage due to locusts or another animal invasion.
Crop insurance also includes crop sapling insurance. Farmers can claim for the loss of crops post-harvesting till the specified mention period of time if the policy terms allow it.
6. Machinery Insurance
The machinery insurance policy is issued to provide financial loss cover in case of breakdown, damage, loss of any vital part or equipment, faulty operation, short-circuit, damage in-transit, dismantling, or any other sudden or accidental loss to the machinery.
The machinery insurance did not account for the loss of mechanical damage due to war, riots, pre-existing cracks, inexperience handling of machinery, or negligence of the owner.
7. Theft/Burglar Insurance
The theft insurance policy is taken against financial loss due to housebreaking, larceny, theft, burglary, robbery, stealing. The policy may include only the individual items which are mentioned in the policy to provide protection and also those policies which include all risks which provide cover against all types of properties of the owner.
8. Aviation Insurance
The aviation insurance policy covers damage cause to the aircraft due to uncertain events, natural disasters, lightning, loss due to sudden fault, plane hijacks, liabilities of passengers, properties, damage or loss of baggage, goods, and cargo.
The policy also provides financial cover in case of liabilities arises due to personal accidents by the pilots or crew members. The loss arising from the aircraft damage may be huge and also the safety of large numbers of passengers is included.
In case of any event of an aircraft accident, the management has to provide financial aids to the injured passengers or compensation for damage of property. Thus, aviation insurance provides a financial shield against these huge losses.
9. Reinsurance
It is the insurance policy taken against the insurance done by the insurance companies. Insurance companies and reinsurance companies form an agreement in which they distribute premium, risk, and claim exposure on a proportionate basis agreed upon for a specific time period which is called a treaty.
Another form of agreement is facultative, in which every high-value insurance proposal is going to reinsurance companies for evaluation and acceptance. It is formed to provide insurance against specific uncertain events.
It helps to spread the risk of insurance by approaching other insurance companies as the risk is distributed among various insurance companies. The risk capacity of a single insurance company is increased from this arrangement.
The risk is distributed among reinsurance companies and insurance companies proportionally on the basis they agreed upon, but in a certain case, if the loss amount increase to the set limit than the reinsurance companies have to bear the excess of loss which is also known as non-proportionate reinsurance.
10. Third-Party Insurance
The third-party insurance provide a financial cover to the accidental loss that occurred to third-party. The insurer and the insured are the two parties involved in an insurance contract. Any other person not a part of the contract is a third-party. It is a type of liability insurance that arises to third-party.
In case of death or damage to the third-party or in the event of an accident by the insured vehicle, the insurance company will provide compensation to the third-party for the damage. The policy needs to be renewed every year. A premium amount is charged from the policy-holder. This insurance policy is generally cheaper as compared to other insurance policies.
11. Employee Insurance
This insurance is done by the employer of the company in the name of the employee of the company. Employee insurance provides financial safety to the employee in the event of damage, permanent disability, hospitalization, or death.
The companies pay premium amount of insurance. By doing so, the employer will be at ease if any employee liability arises, and also the employee gets benefitted as the policy not only provide financial compensation for damage but also covers any health or any treatment costs.
12. Fidelity Insurance
This insurance is taken against the losses suffered by the employer in the corporates due to fraud, dishonesty, theft, forgery by the employees. The compensation to the employer is a limited amount of money mentioned and agreed upon by both parties.
Fidelity insurance may cover an individual employee or group of employees involved in accordance with the nature of the policy and contract by the employer.
13. Fiduciary Insurance
A fiduciary is a person in the corporate world who is responsible for the management and proper execution of the insurance policy plan exclusively provided by the companies to their employees.
It is the duty of the fiduciary that the insurance and benefits from the policy is provided to the employees. If any mismanagement occurs and the company has to pay the compensation then the fiduciary is personally liable for the payments.
So, to safeguard against any claim arises to the fiduciary in the event of mismanagement a fiduciary insurance will be a profitable device.
14. Credit Insurance
Credit insurance is taken by the companies to safeguard them against the default of payments, or any uncertain events that result in a financial loss to the companies and reduce their insolvency.
Credit insurance helps in clear the debt amount in case of death of the insured, any damage due to which the insured is not able to pay the debt, theft of the asset, or in case of unemployment.
This insurance policy generally taken by the import-export businesses as they operate mostly on credit and in event of non-payment by the costumers, loss or damage of goods is common which leads business to financial trouble. Credit insurance helps the insured to mitigate such uncertain risk.
15. Privilege Insurance
The insurance is made available to high net-worth customers by insurance companies. They are given privilege over the general population and are provided extra benefits that are exclusively redeemed by those customers with good wealth.
Some of the benefits provided are discount on premium, investment of premium amount to investment avenues, loyalty points, etc.
He is graduate in M.B.A Finance, and owner of the financial blog “Saifwealth.com“. He started this blog to share his knowdelge in the field of finance and to help people understand and aware about the financial world.
