Based on the insurance terms, the insurer provides a lump sum amount to the policyholder/nominee in case of an eventuality.
The choice of a specific type of insurance policy is made based on individual needs and life goals.
There are various components of an insurance policy, a firm understanding of which helps a lot in choosing the plan that is most suitable for your needs.
Insurance Components
Here are some of these components to help you better understand ‘what is insurance’ and how it works:
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Insurance Premium Policy
The premium of an insurance policy is the amount that you need to pay to purchase a specific amount of insurance cover. It is typically expressed as a regular cost, be it monthly, quarterly, half-yearly, or annually, that you incur during the premium payment term.
There are various factors based on which an insurance company calculates the premium of an insurance policy. The idea behind is to check the eligibility of an insured individual for the specific type of insurance policy that he/she wants to buy.
For example, if you are healthy and do not have a medical history of getting treatment for severe bodily diseases, you will likely to pay less for health insurance or life insurance policy than someone suffering from multiple ailments.
You should also know that different insurance companies may ask for different premiums for similar types of policies. So, selecting the right one at a price you can afford does require some effor
Policy Limit
It is defined as the maximum amount that an insurance company is liable to pay for the losses covered under the insurance policy. It is determined based on the period (policy term), loss or injury, and similar other factors.
Typically, higher the policy limit, higher will be the premium payable. For a life insurance policy, the maximum amount that an insurer pays to the nominee is known as the sum assured.
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