Insurance is an agreement where an individual or institution receives financial protection or reimbursement against losses from the insurance company.
The company makes payments more affordable for the insured.
Insurance policies are used to protect against the risk of financial losses, both large and small, that may result from damage to the insured or his property.
It is an agreement between the insurer and the policyholder in which the insurer is bound to pay.
In exchange for the initial payment the insurer promises to pay for the losses caused by the hazards covered under the insurance policy. An insurance policy is generally a unified contract, which means that it includes all forms of agreement between the insured and the insurer. However, in some cases, letters sent after the final agreement such as supplemental writing can insure the policy is a non unified agreement.
Types of insurance
Major types of insurance include;
Life insurance is a contract between policyholder and insurance company where the insurer gives benefits to the policyholder in exchange for premium if the insured person dies. Depending on the contract other events such as terminal illness or serious illness, may get benefits from life insurance. Policy holders usually pay regular or one time premiums. Other expenses, such as funeral expenses may also be included in the allowance.
Property insurance covers types of insurance such as Homeowner Insurance, Rental Insurance, Flood Insurance and Earthquake Insurance. Property insurance will reimburse the actual cost of damage or replacement cost to the policyholder to resolve the problem of the property. Property insurance is used for property protection or liability cost.
Fire insurance is a type of insurance that covers the loss and damage from a fire. Fire insurance companies become a helping hand to deal with such situations. United Insurance Company Limited is one of the best insurance companies in Pakistan that offers affordable fire insurance policy.
Term liability insurance refers to an insurance product that provides protection to an insured party resulting from injuries and damage to other people or property. Liability insurance policies cover any legal costs and an insured party is responsible for payment if they are found legally liable. Intentional damages and contractual liabilities are usually not included in liability insurance policies.
Guarantee insurance is used as a security for the execution of a work that has been agreed upon in the contract. It is also used as a security for advance payment or payment for services agreed to in the contract.
It is a concept where the government intervenes to ensure that a group of individuals are protected from the risk of any emergency that causes financial problems.
List of insurance companies in Pakistan
State Life Insurance Corporation of Pakistan
Salam Takaful Limited
UBL Insurers Limited
Adamjee Insurance Company Limited
Alfalah Insurance Company Limited Allianz
EFU Health Insurance Limited
Alpha Insurance Company Limited
Pak Qatar Takaful
East-West Insurance Company Limited
EFU General Insurance Limited
Excel Insurance Company Limited
Habib Insurance Company Limited
IGI General Insurance Limited
Jubilee General Insurance Company Limited
New Hampshire Insurance Company
Premier Insurance Limited
Reliance Insurance Company Limited
Security General Insurance Company Limited
Shaheen Insurance Company Limited
Sindh Insurance Limited
Pakistan General Insurance Company Limited
UBL Insurers Limited
Insurance benefits and disadvantages
Following are insurance benefits;
- The most important benefit of insurance is the payment of damages. An insurance policy is a contract that is used to compensate individuals and organizations for losses covered.
- It controls cash flow uncertainty. Insurance provides payment for losses when they occur. Therefore, the uncertainty of paying for losses is significantly reduced.
- Insurance provides proof of financial resources to meet statutory and contractual requirements as well.
- Insurance focuses on promotion of risk control activity. It is the efficient use of the insured’s resources.
- Insurance facilitates loans to individuals and organizations by guaranteeing that payments will be made to the lender if the collateral for the loan is destroyed. This reduces the uncertainty of default by funds borrowed by the party of the lender.
- Insurance companies collect premiums in advance and invest those premiums in a variety of investment vehicles.
- Insurance helps reduce the burden of non refundable accident victims and the uncertainty of society.
Following are the main disadvantages of insurance;
- It does not compensate for all types of losses that were insured by the insurance company.
- Long legal formalities take longer to provide financial compensation.
- Although insurance encourages savings, it does not provide facilities provided by the bank.
- Compensating the victim as little as possible for the purpose of maximizing the benefit rather than maximizing the well being of the insured.
- This can lead to crimes in the society as the beneficiaries of the policy may be tempted to commit crimes to obtain insurance
Sometimes, the total amount of premium may exceed the policy amount receivable at maturity.