Last Updated on December 1, 2021 by Admin
Insurance provide financial protection against heavy loss due to any natural disaster such as fire, flood, earth quake, pandemic, riots, terrorism, or due to an accident, burglary, machinery break down etc. Time is so unpredictable and benefits of Insurance can’t be denied for any reason. insurance is very much important to cover the risk of such unforeseen, un-controllable and unavoidable circumstances which may cause heavy loss to valuable assets, properties and business.
Many people think that they do not require any general insurance as they have enough money to replace or repair their assets if anything happen to them. But, consider a situation where due to natural calamities like fire, flood or earth quake, people completely loose all their money, assets and properties only in few hours which they had created during their life time.
If there is risk covered under an insurance policy in such case then insurance company give the compensation to the owner against such losses.
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Why Insurance is Important?
We are discussing about general insurance in this article. Let’s understand in details that why insurance is important. From the owner perspective, having insurance of assets assure that risk of loss to such assets due to any unpredictable circumstances is covered and owner of those assets need not worry to bear such huge losses.
It is also very important from bankers perspective if they give any loan to the owner against such assets and properties because banks/lenders are also supposed to secure their money and they demand adequate insurance coverage toward those assets and properties.
It is also very important from the govt perspective and they may make regulations time to time for the safety and security of the general public and make insurance as compulsory thing to do for the safeguard of public at large.
This is the reason for compulsory insurance incase of vehicles, specially third-party insurance is must without which vehicles are not allowed to run on the roads.
What is General Insurance?
In broader terms, insurance is categorized into two categories, 1) Life Insurance; 2) General insurance, So general insurance is simply meant for non-life insurance policies that provide insurance cover for motor vehicles, buildings, houses, health, businesses, assets, and travel etc.
These assets have a particular sum insured which is reimbursed depending on the loss from a particular financial event. Typically, it is defined as any insurance which does not come under life insurance. All the rules and regulations related to general insurances are governed by “Insurance Regulatory and Development Authority” which is known as “IRDA”. You may click here to check the IRDA website.
Benefits of Insurance
1. Financial Security and Assurance
Insurance policy provide us financial assurance, support and security against any unforeseen loss to our assets, properties or business.
2. Risk transfer and coverage
The contract of insurance works on the ‘principle of transfer of financial risk from the insured to the insurer’. Owner receive the compensation from the insurance company on occurrence of an unforeseen event and loss to insured assets.
3. Protection and security for successors
Family is the most important and your family also depends on you for financial support. This is why it is important to ensure coverage of insurance to handle any emergency in future.
4. No financial Stress or burden
Nobody can see the future. Any unforeseen tragedy can impact physically, financially, and mentally. But an insurance policy keep us safe, secure and stress free from such future risks and outcomes of such tragedies. We can avoid financial burden during bad time.
5. Insurance is compulsory as per law
Sometimes it is mandatory as per the law like motor vehicle insurance. Nobody is allowed to put motor vehicle on road unless insured as per the Motor Vehicle Act of 1988 and highest claims in India come from motor vehicle accidents only. Similarly, workmen’s compensation insurance is mandatory in business organizations.
6. Insurance avoid huge risk of loss in business
Business insurance protects from financially losses due to any unforeseen consequences and damages, break-down, burglary or destroy of business assets etc.
7. Insurance is allowed as business expense in business and therefore businessmen also get tax benefits on insurance premiums paid for all type of business insurances.
How does insurance work?
There is an agreement or legal contract between the insurer and the insured for the insurance of the assets and articles which is called the insurance policy. The insurance policy has details about the terms & conditions and circumstances under which the insurance company will pay the insurance claim amount to either the insured person or their nominees.
Insurance is a way of protecting yourself, your family, your business and your assets from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid.
Applicants first prepare the details of all assets, articles and properties for which they want to take insurance and amount of risk cover and then they give this proposal to the insurance agents or company.
On the basis of details submitted by the applicant and further to their clarifications, insurance agents/company provide the quotation about insurance premium which applicant is supposed to pay the insurance company to get the insurance policy.
It is always better to take the quotations from different insurance companies and after doing the proper comparison in all respect like cost of premium, service and goodwill of the company, then best out of them can be selected for getting the insurance policy.
Interestingly, insurance company also take risk of providing a high sum assured cover on a very small premium because they knew that very few insured people actually submit insurance claims. This is the reason that generally people get insurance for a big amount at a very low price.
Any individual or company can get insurance policy as per their choice from an insurance company. But the decision to approve the claim of insurance is only at the discretion of the insurance company based on the reports submitted by their own valuers.
Types of Insurance for Business purpose
1. Commercial General Liability Insurance
This insurance policy protects the business owners against any negligent acts of the employees. This insurance protects the businesses in the event that they are sued for negligence and covers events such as injury to any visitor or any third party. It also covers property damage caused in the course of business, defamation and false or misleading advertising.
2. Product Liability Insurance
This is more popular among manufactures of such products where if a product defect causes injury to people or property. For example, if any consumer of those products becomes seriously ill from food poisoning caused by any such negligence, then product liability coverage will pay the claim for damages to the consumer and not the manufacturer.
3. Errors & Omissions Insurance
E & O insurance, also called professional or business liability insurance, covers losses caused by business or professionals who make mistakes or oversights when conducting their jobs including their employees.
For instance, if any employee fails to inform a client of an important details or do any error or omission in work which causes loss of revenues then insurance company may pay for such loss. Lawyers, doctors and architects are among the types of professionals who also cover there risk under this type of insurance.
4. Fire and Earth Quake (S.T.F.I.) Insurance for Commercial Properties
S.T.F.I. stands for special perils, theft, fire and earth quake insurance policy. It provides protection in the event of damage to any business or commercial property. This insurance policy covers are general risk of business and properties against natural calamities.
5. Machinery break-down (MBD) Insurance
MBD insurance protect plant and machinery from loss or damage due to any fault and break-down as insurance company pay for cost of such repairs and replacements to the insured.
6. Burglary Insurance policy
This type of insurance give protection to costly and valuable assets and articles toward any theft or burglary of such items from any business place. All moveable items are covered under this policy.
7. Workmen’s Compensation Insurance
This is compulsory obligations on the employers to take this insurance from legal angle and as part of their statutory liability. This insurance cover workers in case of any accident during their work or job in an organization. It is common for jobs that require manual labor or physical activity.
8. Group accidental and Mediclaim policy for employees
Such insurance policy cover the risk of any accident to employees or any critical illness to the employees. This is very popular and generally employers use this as part of their employees welfare schemes. Employees are largely get benefited where they have to spend heavy amount on medical treatment of their family members while this insurance provide them free of cost medical treatment.
9. Marine Insurance
Marine insurance is done for transport of goods, stock, or machinery from one place to another place. This is very popular among the exporters and importers of goods who transport them from one country to another country and risk of damage, loss, burglary or any nature calamity during transportation of material or machinery is fully covered under the marine insurance policy.
10. Business Interruption or loss Insurance
If due to any unavoidable conditions any one need to close the business temporarily then to cover loss of such business or its profits, this kind of policy is very important. Rental properties are also covered in such policies and are popularly known as rent loss policy.
Frequently asked questions on general insurance
Question no.1: How to choose best insurance company?
Answer: It is always recommended to choose insurance company with big brand name because it is very easy to get policy at cheap price but not so easy to get the claim from insurance company. Secondly, always take quotation from atleast 3-4 different companies so that you compare them and select the best suitable to your purpose of insurance.
Question no.2: Is it legally compulsory to take general insurance in business?
Answer: Not compulsory in all cases but few general insurance policies are mandatory like third party insurance for motor vehicle, workmen’s compensation insurance, if there is business loan on property or stock then bank will make it compulsory to insure such assets and stock etc. So basically, it depends on the situation whether any bank or govt. deptt. make insurance mandatory for you or not.
Question no.3: How to decide value of assets and other items for getting the insurance policy?
Answer: It is always recommended to take re-instatement value of those items, simply means that take value on which the same item can be replaced, for example if you want to cover house property under insurance then you need to see what would be the cost in future if you need to build the same type of property again.
Question no.4: Can we take insurance policy for long period?
Answer: Yes, if you get the insurance policy for long period let say for 2-3years then insurance premium is low as compared to annual policy but this is not applicable for transaction-based insurance policy such as Marine Insurance or Travel policy etc.
Question no.5: Do we get full claim of loss under insurance policy?
Answer: No, each insurance company have their separate claim department to evaluate the actual loss of the assets and articles based on reports submitted by their surveyors and expert opinions thereon. This is time consuming process and sometimes consumers dispute the amount of claim approved by the insurance company and they go to consumer courts etc. to get the justice.
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