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Types of Insurance

dateKnowledge Centre Team dateJuly 07, 2022 views224 Views
Types of Insurance Policies | Different Types of Insurance Plans

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.

You can have insurance policies to cover you against expenses of sudden illnesses and injuries. You can have insurance covering your home or vehicle against damages 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 2 main Types of Insurance?

Given below are the two broad types of insurance:

  • Life Insurance
  • General Insurance

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

a) Term life insurance plan
b) Endowment Plan
c) Whole Life Insurance
d) Unit Linked Insurance Plan (ULIP)
e) Child Plan
f) Pension Plans

2. General or Non-Life Insurance Plans

a) Health Insurance
b) Motor Insurance
c) Home Insurance
d) Fire Insurance
e) Freight Insurance
f) Travel Insurance
g) Asset Insurance

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

Also Read - Principle of Insurance

Types of Life Insurance

1. Term Life Insurance

Term insurance is the purest and most affordable plan among all life insurance plans. Term life insurance only offers the risk cover. Thus, the premium cost is significantly low 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 life goals.

2. Endowment Plans

Endowment plans are one of the best long-term safe investment plans. With tax-deductible investment and 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.

3. Whole Life Insurance

Whole life insurance provides you coverage for the 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.

4. 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 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.

5. 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.

6. 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 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
-  Day care treatment expenses

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

a) Individual Health Insurance

Provides cover against hospitalisation and day-care expenses for the individual.

b) Group Health Insurance

Health cover for a group of individuals connected due to employment or other activity except for availing insurance.

c) Family Floater Health Insurance

Covers one family including spouse, children below the age of 25 years and parents.

d) 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.

e) Senior Citizen Health Cover

Senior citizen health cover includes features beneficial to the people in their old age.

f) Personal Accident Insurance

Personal accident insurance provides financial assistance in the case of accidental injury, disability, and death.

g) 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 your 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:

a) Two Wheeler Insurance

Available for all kinds of motored two-wheeler vehicles, this insurance will cover against own and third-party damages.

b) 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.

c) Commercial Insurance

This insurance applies to the commercial vehicles involved in cargo operations or plying with a large number of passengers.

d) 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 content. It provides coverage against human and natural calamities like fire, earthquake, robbery, burglaries, etc.

Different types of home insurance policies include:

a) Home Structure/Building Insurance
b) Public Liability Coverage
c) Standard Fire and Special Perils Policy
d) Personal Accident
e) Burglary and Theft Insurance
f) Contents Insurance
g) Tenants’ Insurance
h) Landlords’ insurance

4. Fire Insurance

Fire insurance compensates you for losses incurred due to 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:

a) Valued Fire Insurance
b) Specified Fire Insurance
c) Floating Policy
d) Consequential Fire Policy
e)  Replacement Policy
f) 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 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.

a) Domestic Travel Insurance

Travel insurance for travels within the country

b) International Travel Insurance

Travel insurance for foreign travels. It may be necessary for travelling to certain countries and regions.

c) Individual Travel Insurance

Travel insurance you can buy while travelling alone

d) Group Travel Insurance

Available to a group of people travelling together from one destination to another

e) Student Travel Insurance

You should have while you travel to a foreign country for school or university education

f) Senior Citizen Travel Insurance

Travel insurance with specific features for travellers 60 to 70 years of age

g) 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 Rs 1.5 lakh.
Section 80D You Section 80D - You can get a deduction of premium towards health insurance policies. Rs 25,000 deduction is allowed for self, spouse, and dependent children, and you can claim an additional deduction of Rs 25000 towards the premium paid for covering parents.
Section 80DD The premium paid for a disabled dependent is eligible for deduction up to Rs 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-exempted.

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:

a) Term Insurance

b) Health Insurance & critical illnesses cover

c) Accidental insurance

Before you buy a policy, spend time understanding the benefits and comparing features. Also, evaluate if it is in line with your needs and accordingly buy a plan.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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.

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