Insurance Understanding | The story of Insurance
The Story of Insurance;
Let us now understand, “how does insurance work?” through a simple story involving two of our favorite characters from childhood – Akbar and Birbal.
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Situation:
A group of villagers once barged into Emperor Akbar’s court and started creating a huge uproar. When asked what the issue was, the village chief revealed that a wild fire had swept through their village and had burned several homes to the ground.
“We have come to ask for a solution, Your Majesty,” said the chief. Our village experienced a flood two years earlier that washed away many homes. A single calamity like this exhausts all our resources and we have nothing left to rebuild our homes!”
After a moment’s thought, Akbar asked Birbal if he would like to suggest a solution. Birbal replied, “Give me a day’s time, Your Majesty.”
“Granted! Tomorrow, we shall all gather here again at noon,” exclaimed the Emperor and left for his chambers.
The next day, the villagers returned. Everyone, including Emperor Akbar, assembled in the court. Birbal proposed his solution.
“Natural calamities like storms, floods, tornadoes, hurricanes, and earthquakes are beyond the control of human beings. It is difficult to prevent them and the losses arising from them can make any home financially crippled. However, there is a simple yet very effective solution! Before any calamity strikes, all homes are exposed to an equal amount of risk. So the solution lies in the distribution of this risk.”
“And how do we distribute the risk?” asked the Emperor, intrigued.
“Each home that is under the purview of danger and wishes to get protected contributes a small amount of money that will get collected into a fund. The fund will then be used to compensate the owners of homes that get destroyed during a calamity. This way, the risk will be divided and the homes that were destroyed during the calamity can be rebuilt with the help of the fund money.”
Akbar appreciated Birbal’s proposal and turned towards the villagers. “What do you think, my people?” he asked, looking at the village chief.
The villagers started exchanging views among themselves. After some deliberation, the chief stepped forward to not only appreciate Birbal’s wisdom but also to agree to his proposed solution.
From that day onwards, the villagers regularly contributed a part of their savings to this fund. And when calamities hit, the fund was utilized to pay those households that suffered the effects of the calamity.
Word spread quickly about this wonderful solution and soon all the villages in the empire were using this idea to protect their villagers!
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Conclusion:
What Birbal suggested to the villagers in this story is termed as insurance today. In insurance, risk gets divided among all who make their contribution in the form of insurance premiums. And, the coverage amount is paid to those who face financial difficulty resulting from any eventuality that they are covered for.
So What is insurance? Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a financial loss, theft, lawsuit or car accident. When you purchase insurance, you’ll receive an insurance policy, which is a legal contract between you and your insurance provider. And when you suffer a loss that’s covered by your policy and file a claim, insurance pays you or a designated recipient, called a beneficiary, based on the terms of your policy.
The most common types of Insurance coverages are Life Insurance and General Insurance; Here is the brief explanation on the same.
‘Life Insurance’ - One can avail the Life insurance in order to protect the family due to premature death or death during the tenure of the policy. It provides the family with a lump sum amount that helps the grieving family to battle with financial struggles that may occur in absence of a breadwinner. ‘Term Insurance’ It is the most common form of Life insurance where you can pay the premium for the pre-decided term. The family gets the money upon the untimely death of the insured. ‘Unit Linked Insurance Plan’ It is an Investment-cum-Insurance plan. The premiums provide coverage as well as they are for the purchase of units of market-linked equity, debt, and other instruments. This has the potential to provide an opportunity for wealth creation apart from the life cover provision. Life Insurance Coverage Plans also come with tax benefits under Section 80C.
‘General Insurance’ - Non-life insurance policies count as general insurance policies that include insurance coverages for Health Insurance, Home/Property Insurance, Vehicle/Auto Insurance , Education Insurance, Travel Insurance and so on. Health insurance is the most important case and commonly availed. ‘Health Insurance’ You can buy health insurance for yourself or for your family. Some insurance companies have tie-ups with hospitals. So here you can use your policy number to avail of cashless services in-network hospitals. In other cases, you can claim reimbursement for hospitalization and treatments.
Wrapping it up:
The benefit of having insurance is that it prevents burning a hole into your pocket in unprecedented times. It gives you financial assistance for your losses and damage. The basic function of all types of insurance coverages is to provide damage control to the insured by bringing in a lot of people who pay to cover their risks. The fund is further used for capital formation through investment in the markets. This helps the insurance companies to keep running and settle/adjust the claims of the insured people.
Hint: Use these page links to know more in detail; 'Life Insurance', 'ULIP - Investment Plans', 'Term Insurance', 'General Insurance', 'Health Insurance'.
Terms and Conditions:
*Standard T&C Apply. For more details on risk factors, terms and conditions, please read the sales brochure of respective insurers carefully before concluding a sale. Tax benefits are subject to changes in applicable tax laws. For detailed communication on sales contact below authority.
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IRDAI Licensed Agent
- Mr. Dheeraj Bodduna
Financial Advisor
Contact: 85220 66133
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