Team AckoSep 1, 2021
Most people rely on an agent or a middleman to choose insurance coverage for them. This may be due to the jargon-heavy language used on insurance documents. This article will help you with two commonly used insurance jargons - Insurance and Assurance The difference between insurance and assurance is also discussed. Take a look:
Insurance in a contract between a company (registered to sell insurance) and the person buying the policy (policyholder) which states that the company will compensate the policyholder in case of a specific loss in exchange for a premium. The compensation will be approximately equal to the monetary value of the loss. Insurance policies usually have a fixed validity period during which the company is liable to pay the compensation as per the terms and conditions of the policy. This is the policy period.
Mr A bought a car. Since it is mandatory by law to buy a basic motor insurance policy, Mr A purchased a Third-party policy to get coverage against third-party risks. The coverage includes compensation against injuries to someone else, damages to their property/vehicle, or for loss of life while driving.
To get extended coverage, he also purchased the Own Damage component for the car insurance policy. Through this, he can claim for damage caused to his own car. The coverage includes damage from fire, accidents, theft, natural and man-made calamities, etc.
Similar examples of insurance include travel insurance, property insurance, home insurance, crop insurance, etc.
Assurance is commonly used with insurance and is related to Life Insurance policies. Here the policyholder is assured that he/she will receive the compensation upon the occurrence of a certain event. For example, death or disability. These policies are usually valid for a longer duration of time as compared to General Insurance policies.
Mr B bought an Endowment plan for himself. This type of life insurance policy provides a dual benefit of life covers and death. Under this plan, Mr B can receive the maturity benefit when the policy expires. The insurance company will pay a lump sum amount to Mr B when the policy matures. In case of his death, the nominee of the policy will receive the sum assured.
Other examples of life insurance are Unit Linked Insurance Plans (ULIP), Whole life policy, term insurance, etc.
Insurance is mostly used in general insurance like car and bike insurance which will cover accidents and damages to the car, while assurance is used with life insurance policies which will cover the death benefit for the policyholder.
Here is a table that gives detailed differences between insurance and assurance:
|Category||General Insurance||Life Insurance|
|Objective||To compensate for the loss. For example, loss incurred during an accident, fire, theft, flood, etc.||To provide monetary support for a specific situation. For example, a major illness, death, disability, etc.|
|Types of policies||Motor insurance, Health insurance, mobile insurance, etc.||Life insurance, Term insurance, Endowment plans, ULIP, etc.|
|Claim Payment||Approximately, equal to the amount of loss. For example, the cost of repairing/replacing vehicle parts, hospitalization bills, etc.||Pre-decided amount to cover a specific event. For example, a major illness like cancer, the death of the policyholder, etc.|
|Number of claims allowed||Multiple||One|
|Renewability||Mostly on an annual basis or when the policy expires||Not applicable|
|Coverage||Medical insurance, home insurance, property insurance, motor insurance, etc.||Life and death/disability cover.|
|Number of insured||One or more depending upon the nature of the insurance plan.||One|
|Nature of risks||Unpredictable risks like theft, burglary, calamities, fire, accidents, etc||Usually uncertain but predictable risks like death.|
|What is insured?||People and/or property||People|
Both Life and General insurance policies are helpful in specific situations. Insurance provides monetary support that is extremely crucial to bear the expenses of an unfortunate event.
For example, health insurance. The cost of treating an aliment corresponds to the severity of the disease. This can be a problem if the person is not covered with a financial backup i.e. insurance. A Patient’s condition can worsen if he/she is not given quality treatment in a timely manner. In such a case, having an insurance plan in place protects against uncertain liabilities and timely treatment can be given. Thus, it is important to be insured.
Assurance and Insurance are terms that are used in insurance contracts in relation to the payout of the policy. Knowing the meaning of these terms will help in understanding what the insurance plan offers.
Related terms are sum insured and sum assured. Usually, the sum assured of a policy is paid in full to the policyholder or his/her next of kin. On the other hand, the sum insured is usually a compensation for a certain loss. The amount is mostly equal to the loss suffered. In health insurance policies, parts of the sum insured can be used for treatment.
Assurance and Insurance are similar in many ways. But are considered different because they are used in different insurance products.
1) What should I keep in mind before buying a car insurance policy?
Buying car insurance will give you a financial back-up in case of an unfortunate event. Thus, buying a policy that provides adequate coverage is very important. You should keep in mind the following things before buying car insurance:
Consider the usage of your car, this will determine the amount of coverage you need to buy.
A number of people that usually travel in the car. If this number is more and consistent, then you need to buy a Passenger Cover that will cover the cost of injuries to the passengers.
Type of car insurance policy. Buying a comprehensive cover is the best way to get adequate coverage.
If you carry expensive personal belongings then you should buy a Personal Belongings cover.
Type of car will determine the cost of the insurance policy.
2) Why are Life insurance policies a must-have?
Life insurance policies provide a higher payout in case of death or disability. These act as the ultimate financial back-up to the family if the breadwinner suffers an untimely death or disability. Children can complete their education to earn a living with the help of this money. A household can continue to financially survive if the main earning member is bed-ridden and cannot work. Thus, life insurance policies are a must-have.
3) Can a life insurance claim be denied?
Yes, the insurance company has a right to deny a claim. This usually happens in case of fraudulent claims or when a claim is raised against an exception to the policy. For example, if the policyholder has died by suicide, the insurance company may reject a claim if suicide was explicitly mentioned as an exclusion in the insurance policy. Thus, it is important to go through the terms and conditions of the insurance policy as this avoids claim rejection.
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