What is Insurance?

“There is nothing certain, but the uncertain.” – Proverb

This is how life is. It is a journey through uncertain events. There are different ways to cope up with the uncertainties that life throws at us. And, one such way is to take adequate insurance cover.

Insurance allows individuals and organisations to protect from financial loss by insuring life, health, car etc. by paying a pre-determined premium at regular intervals. So basically, it is a legal agreement between the insurance company and the insured individual.

The insurance policy carries the details about the conditions and circumstances under which the insurance provider will pay out the insurance amount to the insured individual or their nominees. Individuals need to file a claim to avail the benefits.

The insurance company may also reject the claim. So, it is important that the applicant provides the correct details so you or your family members don’t have to face a harrowing experience.

Different Types of Insurance

There are different types of insurance. Insurance companies offer three major categories of insurance. They are life insurance, health insurance, and car insurance.

Life Insurance

It is the most common type of insurance. As we can understand from the name, life insurance insurers the life of an individual. As per the conditions set by the insurance company, the nominee of the life insurance policy will receive financial help upon the insured individual’s death during the insured period. So, taking a life insurance is the first thing that you need to do.

There are seven types of life insurance in India. Term life insurance, Unit linked insurance plans (ULIPs), Endowment plans, Money back policy, Whole Life Insurance, Child Plan, and Retirement Plan are the seven types of life insurance policies.

Term Insurance Planis the most common, cheap and simple life insurance product. It insurers the life of the policyholder for a certain period. The policy holder has to pay a fixed premium payable on a yearly or monthly basis for a certain sum assured amount. In case of an unfortunate event, the nominee will receive the sum assured in bulk or as monthly pay-outs.

Term insurance provides the benefit of high cover with nominal premium. The policy holder can widen the insurance cover through various riders like critical illness. The fixed premium of term insurance is another feature of this policy. As the premium mount remains constant, taking a term insurance is cheaper if taken early in life.

Typically, term insurance plans don’t have money back policy. However, few of these policies now offer a return of premiums at the end of the policy term.

Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plan offers a mix of insurance, investment, and tax-saving. They invest a part of your amount in the market and also provides life cover. There are different types of ULIPs that you can select according to your risk tolerance and investment horizon. These plans have a lock-in period of five years before which you cannot redeem your money. Tax benefit of the policy is available under the Section 80C of the Income Tax Act of India. From a life insurance standpoint, the cover provided by an ULIP may not be adequate.

Endowment plans

Endowment plans are like ULIPs and provide insurance cover along with investment. The nominee of the plan will receive the sum assured of the plan on the death of the policyholder, and sum assured and accumulated bonus if the insured person survives the policy term.

Money back policy

Money back is the type of life insurance policy where the insured individual gets a fixed sum of money at regular intervals during the policy term, and the nominees receive the sum assured amount on death or on policy maturity.

Whole life insurance

Whole life insurance provides complete life cover to your life or up to 100 years. The nominee receives the sum assured after the death of the insured person. The policyholder will get the maturity amount if the individual lives for over 100 years.

Child plan

Parents can save money for their child’s various life events such as education, marriage, through a child insurance plan. This plan aims to take care of the child's needs if the parent or the policyholder meets with an unfortunate event and passes away during the policy term. Here, the child or family receives the required amount. Few insurance companies have waived off the premiums if the individual passes away, and they make the payment after the policy matures. However, if the policyholder survives the term, a onetime pay-out or annual payments is made after the child crosses 18.

Retirement plan

Retirement plan helps you build the required corpus so that you live your post retired life with no worries. Policyholders can choose a single pay-out or consistent annual pay-out after 60 years of age.

Health Insurance Health insurance insurers the financial risk that can arise on account of hospitalisation and other health issues. There are two ways to get financial assistance: cashless hospitalisation and reimbursement.

The insurance company has tie-ups with different clinics and centres that provides cashless treatment to the policyholders. The daily cashless hospitalisation amount will vary among the health insurance providers. With reimbursement, the insured person can seek medical treatment from their preferred hospital or clinic and pay the required amount upfront. The company later reimburses the amount after analysing the required documents. It seen that the cost of the medical treatment may wipe out the entire family’s lifelong savings. So, a health insurance is a must. There are several benefits of having a health insurance policy. Health insurance takes care of your hospital bills, rising cost of medical treatments, pre-hospitalisation and post- hospitalisation expenses, maternity care among others.

There are different types of health insurance in India. Currently, insurance companies offer Corona Kavach Policy to their customers that covers hospitalisation, pre-post hospitalisation, home care treatment expenses and AYUSH treatment if the policyholder is tested positive of COVID-19.

Policyholders can also avail tax benefits of up to Rs. 25,000 for premium paid for health cover under the section 80D of the Income Tax Act.

Car or Vehicle Insurance

Road accidents kill hundreds of people. According to a WHO’s report, road traffic crashes kill around 1.35 million people each year. Currently, in India, the third-party insurance that covers the damages because of a third party is mandatory in India. However, it may not cover the damages by the vehicle owner. Hence, it is important to have comprehensive car insurance or a two-wheeler own damage insurance to cover accident risks such as fire, road accidents and theft.

ConclusionInsurance is the most essential financial product. Life insurance is non-negotiable for individuals with dependent family members. Health insurance is a must for everyone as it can derail life long savings. Vehicle insurance protects the vehicle owner from financial risks arising from accidents and theft.