Insurance is the offer of a guarantee, represented via a contract and governed by its policy, wherein the individual or the entity being insured is entitled for a compensation against losses agreed upon in the given policy contract.
As a simple example, let’s consider the case of Raj. He buys a term life insurance for himself for INR 50 lakhs value. He paus a premium of INR 6000 per year for the same. As long as Raj continues to pay the premium each term, the insurance policy guarantees (subject to terms and conditions outlined in the policy document) that in the unfortunate event of Raj’s demise during a particular term when the policy is active, Raj’s nominee shall be paid the sum equivalent to the insured value, i.e., INR 50 lakhs. That is Raj’s life insurance policy.
In another example, we can take the case of Raj’s insurance policy on his car. As long as Raj continues to pay, in any active term (premium paid in advance), should his car undergo any damage (as per agreed upon terms and conditions in the policy document), the insurance company will pay for the repairs in accordance with the amount of the policy as well.