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agreeing to pay the insuring person (insured) a fixed amount of
money or upto a certain amount of money – as in reimbursement
health insurance (sum assured) on the happening of a certain
event (insured peril).
Insurance companies collect premiums to provide for this
protection and losses are paid out of the premiums so collected
from the insuring public. In other words, an insurance contract
promises to make good to the insured by paying a certain sum in
consideration for the premium received from the insured.
7. Why is buying an insurance policy important?
In today’s era, buying an insurance policy has become very
important as an insurance policy once bought serves:
a) To provide protection
The most important function of insurance is to provide
protection against any potential risk of loss. Having
insurance gives a sense of security to an individual,
encourages his/her habit of forced saving, provides
mental peace, increases efficiency and hence at large
contributes to the conservation of individual health. In
addition, there is cover for legal liability, security to the
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