Types of Insurance in India: Understand Different Types of Insurance

2024-07-07

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In the general course of your financial life, you will end up using different types of insurance plans. Some of these plans you buy because they are mandatory, others you will avail of as an employee benefit or other schemes. But, the majority of these various types of insurance policies help protect your financial status from emergencies.

Key Takeaways

Two main types of insurance exist: Life Insurance and General (Non-Life) Insurance.
Life Insurance provides financial protection to your family in your absence.
General Insurance covers health, motor, home, travel, and other valuables.
Each type of insurance serves a different purpose, and your choice should align with your life goals and risks.
Tax benefits are available under various sections of the Income Tax Act.
Essential policies for most people include Term Life, Health, and Accidental Insurance.
Choose insurance thoughtfully, as it forms the foundation of a secure financial future.

You can have insurance policies to cover you against the expenses of sudden illnesses and injuries. You can have insurance covering your home or vehicle against damage or covering you while on a short trip.

Let us understand in detail about different types of insurance policies and how to choose the right one for yourself.

What are the Two main Types of Insurance?

Given below are the two broad types of insurance:

Life Insurance: Life insurance provides financial protection to your family in the event of your untimely death. It ensures that your loved ones receive a lump sum or regular payouts, helping them manage living expenses, debts, or future goals even in your absence.
General Insurance: Life insurance provides financial protection to your family in the event of your untimely death. It ensures that your loved ones receive a lump sum or regular payouts, helping them manage living expenses, debts, or future goals even in your absence.

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Types of Insurance Policies in India

An insurance contract works based on certain principles. Based on the applicable principles the types of insurance in India can be divided into two major categories:

1. Life Insurance Plans:

Term life insurance plan
Endowment Plan
Whole Life Insurance
Unit Linked Insurance Plan (ULIP)
Child Plan
Pension Plans

2. General or Non-Life Insurance Plans:

Health Insurance
Motor Insurance
Home Insurance
Fire Insurance
Freight Insurance
Travel Insurance
Asset Insurance

Life insurance and general insurance plans have been further classified into several categories based on the plan’s objective and use.

Types of Life Insurance

Here’s a quick look at the main types of life insurance policies and how they work:

Term Life Insurance: Term insurance is the purest and most affordable plan among all life insurance plans. Term life insurance only offers risk cover. Thus, the premium cost is significantly lower for a large sum assured.
With a nominal premium amount, you get adequate life cover for your family. If anything happens to you, your family can still sustain their life and meet their life goals.
Endowment Plans: Endowment plans are among the safest long-term investment options. With tax-deductible investment and an exempt maturity value, the plan saves your wealth from tax and inflation.
These plans also offer financial coverage to you against life's uncertainties. If you survive the policy term, you receive a lump sum amount. If something happens to you during the policy tenure, the insurance company pays the nominee the sum assured.
Whole Life Insurance: Whole life insurance provides you coverage for your entire life and not just for specific years. Whole life cover can continue until you reach 100 years of age. This means that your nominees will receive a benefit amount even in the case of your natural demise.
It also has a savings component to help you accumulate wealth during the policy term. Whole life insurance is a great way to leave a legacy for your next generations.
Unit Linked Insurance Plan (ULIP): Unit Linked Insurance Plans or ULIPs are life insurance plans which allocate units against your invested money. You can invest in a mix of debt and equity funds with ULIPs and avail of all the tax benefits.
These plans offer you double benefits - investment options and insurance benefits. A part of your premium goes towards market-linked equity and debt instruments. The balance goes towards providing you with life cover during the policy tenure.
Pension or Annuity Plans: Pension or annuity plans are an essential part of your post-retirement life. These plans help you draw a regular income, i.e., annuity, out of your large retirement corpus.
These insurance plans also provide a cushion for your post-retirement life. You can invest in pension plans individually or jointly with your spouse. With joint pension plans, your spouse can be assured of a pension even after your demise.
Child Insurance Plans: Child insurance plans are endowment life insurance or ULIP plans with special features to support your child’s future. You can secure your child's important life goals like education and marriage by investing in child plans. Child insurance plans come with insurance and savings benefits.
If something happens to you before the goals, the insurance takes care of your child's goals. If you continue to live, the savings will grow to fulfil your dreams.

Types of Non-Life/General Insurance Policies

Non-life insurance plans are those which cover any event except the loss of life. These insurance policies are useful for safeguarding your financial interests in an asset, your health, and even your business inventory. Below are the different types of non-life insurance plans available to you:

1. Health Insurance

Health insurance plans cover your emergency medical expenses. Health insurance plans either reimburse or pay the treatment cost for any illness or injury. Generally, a health insurance plan will cover the following expenses:

Hospitalization expenses
Medical bills pre and post-hospitalization
Treatment expenses for critical illnesses
Daycare treatment expenses

You can avail of the following types of health insurance plans, depending on your protection needs:

Individual Health Insurance:- Provides cover against hospitalisation and day-care expenses for the individual.
Group Health Insurance:- Health cover for a group of individuals connected due to employment or other activity except for availing insurance.
Family Floater Health Insurance:- Covers one family including spouse, children below the age of 25 years and parents.
Critical Illness Health Insurance:- Critical illness health cover offers you a lump sum amount upon diagnosis of a dangerous illness. The illnesses include cancer, renal failure, heart failure, stroke, etc.
Senior Citizen Health Cover:- Senior citizen health cover includes features beneficial to the people in their old age.
Personal Accident Insurance:- Personal accident insurance provides financial assistance in the case of accidental injury, disability, and death.
Maternity Insurance:- Maternity insurance is useful for mothers and a new born child. It covers pre and post-natal and delivery emergencies.

2. Motor Insurance

Motor insurance offers financial assistance in case your vehicle is involved in an accident. It is mandatory to have motor insurance in India for your bike, car, and commercial vehicle.

You can avail of different types of motor insurance as per your vehicle and needs:

Two Wheeler Insurance:- Available for all kinds of motored two-wheeler vehicles, this insurance will cover against own and third-party damages.
Car Insurance:- Car insurance is available for passenger vehicles for private or commercial use. This insurance can cover the driver, passenger and third party along with the car.
Commercial Insurance:- This insurance applies to the commercial vehicles involved in cargo operations or plying with a large number of passengers.
Fleet Insurance:- Fleet insurance is a form of motor insurance covering a large number of vehicles under the same scheme.

3. Home Insurance

Home insurance provides you coverage for the unforeseen damage or loss caused to the house structure and its contents. It provides coverage against human and natural calamities like fire, earthquake, robbery, burglary, etc.

Different types of home insurance policies include:

Home Structure/Building Insurance
Public Liability Coverage
Standard Fire and Special Perils Policy
Personal Accident
Burglary and Theft Insurance
Contents Insurance
Tenants’ Insurance
Landlords’ insurance

4. Fire Insurance

Fire insurance compensates you for losses incurred due to an accidental fire breakout. Under this insurance plan, the insured (individual or company) receives a significant part of the damages to the property.

You can avail the following fire insurance policies in India:

Valued Fire Insurance
Specified Fire Insurance
Floating Policy
Consequential Fire Policy
Replacement Policy
Comprehensive Fire Insurance Policy

5. Freight Insurance

Freight insurance is a policy put in place by a third party that ensures the partial or total value of your cargo. These policies cover goods and merchandise against loss or damage during transit from one location to another.

6. Travel Insurance

Travel insurance provides you with financial protection when you are travelling in India or abroad. It provides coverage that takes care of any issues you may face during a trip like flight cancellation, loss of passport, loss of baggage, or medical emergencies.

Domestic Travel Insurance:- Travel insurance for travels within the country.
International Travel Insurance:- Travel insurance for foreign travels. It may be necessary for travelling to certain countries and regions.
Individual Travel Insurance:- Travel insurance you can buy while travelling alone.
Group Travel Insurance:- Available to a group of people travelling together from one destination to another.
Student Travel Insurance:- You should have while you travel to a foreign country for school or university education.
Senior Citizen Travel Insurance:- Travel insurance with specific features for travellers 60 to 70 years of age.
Family Travel Insurance:- Umbrella insurance to cover your entire family on a trip

7. Asset Insurance

Asset insurance plans protect your assets like cars, electronic gadgets, jewellery, etc. Asset insurance generally protects you against theft or damage to a valuable asset.

Tax Benefits of Insurance

Income Tax Section	Benefits
Section 80C	You can claim a deduction of the life insurance premium you pay from your taxable income under Section 80C, and the overall limit of deduction available is ₹ 1.5 lakh.
Section 80D	You Section 80D - You can get a deduction of the premium towards health insurance policies. ₹ 25,000 deduction is allowed for self, spouse, and dependent children, and you can claim an additional deduction of ₹ 25000 towards the premium paid for covering parents.
Section 80DD	The premium paid for a disabled dependent is eligible for deduction up to ₹ 75,000 every year. In case of severe disability, a higher deduction of Rs 1 lakh is allowed
Section 10(10D)	Under this section, the life insurance benefits the nominee receives from the insurance company are tax-exempt.

Must-Have Insurance Policies

Insurance requirements may vary from person to person. Depending on your financial needs and existing financial condition, you may opt for certain insurance policies. However, there are some insurance policies you must have. Some of them are:

Term Insurance
Health Insurance & critical illnesses cover
Accidental insurance

Before purchasing a policy, take the time to understand its benefits and compare its features. Also, evaluate if it is in line with your needs and accordingly buy a plan.

Conclusion

Buying a life insurance policy is a significant financial decision that deserves careful thought and planning. Don’t rush the process. Take time to understand the different types of policies, their benefits, exclusions, and long-term value. Compare features like premium costs, coverage duration, claim settlement ratios, and additional riders that may suit your lifestyle or responsibilities.

Most importantly, ensure the policy you choose reflects your personal priorities, whether it's securing your family’s future, covering loans, or building wealth over time. When selected thoughtfully, life insurance doesn’t just provide protection; it offers peace of mind and serves as a reliable pillar in your overall financial strategy.

Plan wisely today for a more secure tomorrow.

FAQs

Insurance is a legal financial contract where the insurer agrees to provide for the losses of the insured for a small consideration. Insurance helps you (as insured) maintain your financial position in the face of unforeseen contingencies such as accidents, natural calamity, sickness, etc. Due to the involvement of the premium (consideration), the agreement is legally binding.

In the case of life insurance, the coverage depends on your annual income. However, in the case of general insurance, except for health cover, your coverage will depend on the value of the asset. For example, car insurance value cannot exceed the value of the car.

In the case of life insurance, you can look for claim settlement ratio, online facilities, processing time, etc. In the case of health insurance you can look at the range of networked hospitals, and online policy management, along with the claim settlement record.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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