DEFINITION OF INSURANCE

Protection against risk, loss, or ruin, by a contract in which an insurer (the company) guarantees to pay a sum of money to the insured (the client), the claimant (the other party claiming injury against the insured), or the beneficiary (person receiving a benefit as designated by the insured, usually for life insurance), in the event of death, accident, fire, etc. The act of insuring, or assuring, against loss or damage by a contingent event; a contract whereby, for a stipulated consideration, called premium, one party undertakes to indemnify or guarantee another against loss by certain specified risks.The premium paid for insuring property or life. The sum for which life or property is insured. A guaranty, security, or pledge; assurance. Insurance can be defined as the act of providing indemnity or coverage against harm, as the contract which spells out the terms of coverage, or as the actual coverage itself. In all instances, matters concerning insurance coverage refer to the legal and financial protection against potential future harm. The act, system, or business of insuring property, life, one's person, etc., against loss or harm arising in specified contingencies, as fire, accident, death, disablement, or the like, in consideration of a payment proportionate to the risk involved. Coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract. The contract itself, set forth in a written or printed agreement or policy. The amount for which anything is insured. An insurance premium. Any means of guaranteeing against loss or harm. Insurance or Assurance, device for indemnifying or guaranteeing an individual against loss Reimbursement is made from a fund to which many individuals exposed to the same risk have contributed certain specified amounts, called premiums. Payment for an individual loss, divided among many, does not fall heavily upon the actual loser. The essence of the contract of insurance, called a policy, is mutuality. The major operations of an insurance company are underwriting, the determination of which risks the insurer can take on; and rate making, the decisions regarding necessary prices for such risks. The underwriter is responsible for guarding against adverse selection,

wherein there is excessive coverage of high risk candidates in proportion to the coverage of low risk candidates. In preventing adverse selection, the underwriter must consider physical, psychological, and moral hazards in relation to applicants. Physical hazards include those dangers which surround the individual or property, jeopardizing the well-being of the insured. The amount of the premium is determined by the operation of the law of averages as calculated by actuaries. By investing premium payments in a wide range of revenue-producing projects, insurance companies have become major suppliers of capital, and they rank among the nation's largest institutional investors.

IMPORTANCE OF INSURANCE
The process of insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. The insurance principle comes to be more and more used and useful in modern affairs. Not only does it serve the ends of individuals, or of special groups of individuals, it tends to pervade and to transform our modern social order, too. The role and importance of insurance, here, has been discussed in three phases: 1) uses to individual 2) uses to a special group of individuals ie business or industry and 3) uses to the society. USES TO AN INDIVIDUAL 1. Insurance provides security and safety The insurance provides safety and security against the loss on a particular event. In case of life insurance payment is made when death occurs or the term of insurance is expired. The loss to the family at a premature death and payment in old age are adequately provided by insurance. In other words, security against premature death and old age sufferings are provided by life insurance. Similarly, the property of insured is secured against loss on a fire in fire insurance. In other insurance, too, this security is provided against the loss at fire, against the loss at damage, destruction or disappearance of property, goods, furniture and machines, etc. 2. Insurance affords peace of mind The security wish is the prime motivating factor. This is the wish which tends to stimulate to more work, if this wish is unsatisfied, it will create a tension which manifests itself to the individual in the form of an unpleasant reaction causing reduction in work. The security banishes fear and uncertainty, fire, windstorm, automobile accident, damage and death are almost beyond the control of human agency and in occurrence of any of these events may frustrate or weaken the human mind. By means of insurance,however, much of the uncertainty that

centres about the wish for security and its attainment may be eliminated. 3. Insurance protects mortgaged property At the death of the owner of the mortgaged property, the property is taken over by the lender of money and the family will be deprived of the uses of the property. On the otherhand, the mortgage wishes to get the property insured because at the damange or destruction of the property he will lose his right to get the loan repayed. The insurance will provide adequate amount to the dependents at the early death of the property-owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate amount at the destruction of the property. 4. Insurance eliminates dependency At the death of the husband or father, the destruction of family need no elaboration. Similarly, at destruction of property and goods, the family would suffer a lot . It brings reduced standards of living and the suffering may go to any extent of begging from the relatives, neighbours or friends. The economic independence of the family is reduced or , sometimes, lost totally. What can be more pitiable condition than this that the wife and children are looking others more benevolent than the husband and father, in absense of protection against such dependency. The insurance is here to assist them and provides adequate amount at the time of sufferings. 5. Life insurance encourages saving The elements of protection and investment are present only in case of life insurance. In property insurance, only protection element exists. In most of the life policies elements of saving predominates. These policies combine the programs of insurance and savings. The saving with insurance has certain extra advantages-i) systematic saving is possible because regular premiums are required to be compulsorily paid. The saving with a bank is voluntary and one can easily omit a month or two and then abandon the program entirely. ii) in insurance the deposited premium cannot be withdrawn easily before the expiry of the term of the policy. As contrast to this, the saving which can be withdrawn at any moment will finish within no time. iii) the insurance will pay the policy-money irrespective of the premium deposited while in case of bank-deposit, only the deposited amount along with the interest is paid. The insurance, thus, provides the wished amount of insurance and the bank provides only the deposited amount. iv) the compulsion or force to premium in insurance is so high that if the policy- holder fails to pay premiums within the days of grace, he subjects his policy to lapsation and may get back only a very nominal portion of the total premiums paid on the policy. For the preservation of the policy, he has to try his level best to pay the premium. After a certain period, it would be a part of necessary expenditure of the insured. In absense of such forceful compulsion elsewhere life insurance is the best media of saving. 6. life insurance provides profitable investment Individuals unwilling or unable to handle their own funds have been pleased to

find an outlet for their investment in life insurance policies. Endowment policies, multipurpose policies, deferred annuities are certain better form of investment. The elements of investment i.e. regular saving, capital formation, and return of the capital along with certain additional return are perfectly observed in life insurance. In India the insurance policies carry a special exemption from incometax, wealth tax, gift tax and estate duty. An individual from his own capacity cannot invest regularly with enough of security and profitability. The life insurance fulfills all these requirements with a lower cost. The beneficiary of the policyholder can get a regular income from the life-insurer, if the insured amount is left with him. 7. life insurance fulfills the needs of a person The needs of a person are divided into a) family needs) old-age needs) readjustment needs) special needs) the clean-up needs. IMPORTANCE OF INSURANCE Human beings, his family and properties are always exposed to different kinds of risks. Risks involve the losses. Insurance is a tool which reduces the cost of loss or effect of loss caused by variety of risk. It accumulates funds to meet individual losses. It is not device to prevent unwanted event of happening or cause of loss but protects them against that loss by compensating which as lost. The role and importance of insurance are discussed as follows: 1. Insurance provides security Insurance provides safety and security against the loss on a particular event. Life insurance provides security against death and old age sufferings. Fire insurance protects against loss due to fire while Marine insurance provides protection and safety against loss of ship and cargo. For personal accident and sickness insurance financial protection is given when the individual is unable to earn. In other insurance too, this security is provided against the loss at a given contingency. 2. Insurance reduces business risk or losses In Business, commerce and industry, huge properties are employed. Because of slight negligence, the property may be turned in to ashes. A person may not be sure of his life, health and cannot continue the business up to the longer period to support his dependents. By the help of insurance, he can be sure of his earning, because the insurance company will pay a

fixed amount at the time of death, damage by fire, theft, accident and other perils. 3. Insurance provides peace of mind Insurance removes the tensions, fears, anxiety, frustrate or weaken of the human mind associated with the future uncertainty. By providing financial position and promise to compensate losses arise out from various risk, it provides peace of mind and stimulates more and better work performance of an individual. 4. Life insurance encourages saving The insured has an obligation to pay premium regularly and cannot be withdrawn easily before the expiry of the term of policy. Life insurance encourages the habit of regular and systematic saving through premium and after a certain period, it would be a part of necessary saving of the insured person. 5. Insurance accelerates the economic growth of the country To develop the economic growth of the country, insurance provides strong hand and mind, with protection against loss of property and capital to produce more wealth. It provides protection against different kinds of loss caused by risk. It accumulates the capital from the insured and utilizes for the development of country. Thus, the insurance meets all the requirements for the economic growth of a country. 6. Insurance provides credit facilities The insured person can get loan by pledging insurance policy and the interest will not exceed the cash value of policy charged by insurer. In case of death of insured person, the policy can be utilized for setting of the loan with interest. Business person can take loan on the basis of insurance documents from the bank also. 7. Insurance helps to reduce inflation Inflation created from over supply of money and on less production entities. Insurance can help to reduce the inflationary pressure in two ways. Firstly, it collects money as an amount of premium which controls over supply of money

and secondly, it provides sufficient funds for increase production entities. Thus, it reduces the impact of inflation. 8. Insurance makes security and welfare of employees The security and welfare of employees is the responsibility of employer. These security and welfare are easily met by life insurance, accident and sickness benefit and pension which are generally provided by group insurance. The premium for group insurance is normally paid by the employer. Insurance is the simple method for employer to fulfill their responsibility. Due to these benefits, employee will devote their maximum capacities to complete their job. 9. Other Importances of Insurance a) Insurance helps to promote foreign trade providing protection again trade risk. b) Insurance increases business efficiency eliminating the loss of damage, destruction, or disappearance of property of goods. c) Insurance protects the social wealth providing protection against social evil. d) Development of insurance business helps to solve the evil of unemployment, generating employment opportunity in the country. e) The insured gets tax benefit in life insurance. Insurance is important Insurance is important because if you could not work because of an accident or injury or damaged something you couldnt replace, had an accident in your car or had something stolen, insurance is there to help you pay for it, replace it or help to keep you monthly payments paid. Insurance is that extra security if anything were to go wrong so you get the help you need, when you need it. Here at comparethemarket.com we know the importance of insurance but equally know how important it is to make sure you dont end up over-paying for it. That is why comparing insurance has never been easier and gives you the chance to find great deals available on the market today, all from the comfort of your own home. Motor Insurance

Want to find cheaper car or van insurance? With comparethemarket.com you can compare over 400 prices to find a great deal that could save you money on your motor insurance. Home Insurance Your home insurance doesnt need to be expensive, by using comparethemarket.com you can compare top home insurance providers to bring you competitive quotes in minutes that could save you money! We here at comparethemarket.com know the importance to saving money. That is why we are constantly updating and researching the market for you to bring you todays competitive prices on home insurance. Life Insurance It is important to make sure you get the best deal possible on your life insurance and thats where we at comparethemarket.com come in. We compare a panel of providers to bring you competitive quotes available on the market today. We search for quotes on a range of life insurance products from level term insurance to critical illness and mortgage protection life cover bringing you competitive quotes from the market today. Travel Insurance Having travel insurance can give you that extra peace of mind when travelling away from home that you are covered if your luggage was to get lost or stolen or you were to fall ill. Travel Insurance doesnt need to be expensive but lost luggage and medical bills certainly can be. Whether youre after an annual travel insurance policy, business travel insurance to an over 65 travel insurance policy, family travel insurance, single trip insurance or a policy catered for a specific holiday like a ski resort or a Mediterranean cruise. We can find quotes for travel insurance for almost every person going to almost every destination. Business Insurance Insurance might not be the first thing someone thinks about when running a business, but it should be an important consideration. Insurance offers peace of mind and the policy that you purchase needs to cater for all your business needs. Here at comparethemarket.com we know how important it is to make sure your business is covered. We work in association with the UKs market leaders in providing business insurance, allowing you to compare top providers that you and your business can trust. Health Insurance Because there are so many health insurance companies to choose from and a variety of different types of cover available we can often end up getting confused with what sort of policy is best for our individual needs.

Thats where comparethemarket.com comes in, we compare health insurance cover from a range of the leading UK private health providers giving you affordable quotes that could save you money. Payment Protection Insurance If you were made redundant, or could not work due to an accident or illness, having payment protection insurance gives you that extra financial support to help you through this difficult time in your life for a set period dependant on your policy. Pet Insurance Your pets are really important to you as they become an extended member of your family. Having the right pet insurance is important so that if they ever need vaccinations or treatment, you can give them all the care they need without the extra worry of escalating vet bills. All you need to do is tell us whether you own a Cat, Dog, Rabbit or Horse and we will show you the relevant providers for your animal. Here at comparethemarket.com we have specialist insurers that cater especially for these animals, you can compare pet insurance prices and be able to see the special offers and best deals our providers offer Bike Insurance Whether you own a Honda VFR800 ABS, Harley Davidson or a small Suzuki TR 50 scooter to take you and to and from work everyday, we can get a bike insurance quote to suit almost all bikes with a range of different policy features including helmet and leather cover, breakdown cover, European cover and legal cover.

(Life) Insurance in Financial Planning-Why is Life Insurance Important in Personal Finance?

Life insurance is a very important part of good financial planning. As I have mentioned several times before in personal finance, protection is the outmost important aspect of personal finance. When it comes to personal finance many forget about insurance, I believe the Financial Pyramid illustrates the importance of insurance in financial planning.

Why is Insurance Important in financial planning?

To illustrate the importance of insurance in financial planning, imagine the following scenario: You are in your early 30s and married for 5 years, your spouse is also in her early 30s. You have a son 5 years old. You both are doing very well household income of $200,000 house worth $600K and mortgage of $450K. You have a car financed with $25,000 in loans. You both have RRSPs each worth $200K and RESP now worth $15,000. Your

plan is to have at least $1.5Million each in your RRSP and fully pay for your sons education and give him some money after graduation you estimated about $85,000 will do. You have great investments and a top investment advisor, you save aggressively on monthly bases and can reach your goal in about 20years you have the perfect financial plan. Now, You find out that you have some type of cancer and can not work for at least 18months, if you get the treatment right away. The only way you can get the treatment quickly is if you go to the west coast to a private clinic. I will not go much further with the illustration, but what are some costs associated with this illness now? Treatment Loss of income Withdrawal from RRSP (you pay tax and loss on earnings) Travel and accommodation costs These are just a few costs that come to mind. This will throw your perfect financial plan out of the window, all the great hopes you have are diminished and may not be possible anymore. The point here is that one unexpected event can cause the best financial plan, without insurance, to be worthless. If you had Critical Illness Insurance you would not feel the major financial impact, as you would have received tax-free lump sum.

What types of Insurance do I need?

There are many types of insurance, some important others not so important. Most of us are well aware of Auto Insurance and Home Insurance. A lot of us have Health Insurance in our benefits package at work. Other types of insurance are: life insurance, disability insurance, and critical insurance. I have discussed Critical Illness insurance before, here is a quick overview of Life and Disability insurance.

Life Insurance:
Provides tax free lump sum to the beneficiary, the amount is predetermined. The purpose is to help loved ones in case of your death. If I die I want to make sure my spouse is taken care of well, which means the bills are paid and she has enough income to support her life style. Now in our earlier example imagine something happened to you what would your spouse do? She would have the mortgage and car payments as well as everyday expenses. If you had enough protection she would not have to worry about those issues. [A more detailed post about life insurance is coming.]

Disability Insurance
One of the most important and most complicated types of insurance policies is Disability Insurance. The purpose is to replace your income when you are disabled and unable to work. Disability insurance is much more complicated than Life or Critical Illness, so I

recommend reading through your contract very carefully. I will discuss Disability insurance in more detail in another post.

Do I need to have all of them?

The simple answer is YES YOU DO. Each insurance product serves a different purpose and you need to protect all of them to have a proper financial plan.

This will cost too much?

Not always true! Many over estimate how much insurance would cost them, I recommend speaking to a knowledgeable insurance agent and looking at different options. Some of this is available through your employer group plans, mainly Health and Disability. You might have to pay for the Disability Insurance, but the cost is a lot lower than and individual Disability plan.

How much Insurance do I need?

This is the most common question in financial planning when it comes to purchasing insurance. There will be a full post on this, but here is a short version of it. Life Insurance: Add all your debt+ funeral costs (about $20K) + 6 months of your after tax income, this will give you the total amount you would need. Now subtract from this number any savings you may have specifically for this purpose. DO NOT count RRSP savings or RESP savings. This will give you the amount you would need. I suggest get TERM Insurance and the length of the term should be at least the length of your longest debt. Critical Illness Insurance: This is somewhat different and more expensive, I suggest checking a few different types of products to find a good one. There really isnt a formula for this, some suggest 2X salary others suggest 6 months Salary plus 1 year mortgage payments. The reason for this is that the amount you will need will differ for each illness, if you have a heart attack a lower amount will be enough than if you have cancer. I suggest get an amount you would be comfortable with in the worst case scenario. I hope you see the importance of insurance and start thinking about it, if you havent already.

Tips for insurance:

Buy simple plans, no bells and whistles Buy from reputable company Buy Term with Renewable and Convertible options Do your research and shop around

Review annually and modify as needed Insurance is a PROTECTION tool, NOT a wealth creation tool