What is Insurance?
Insurance is a legal contract between an individual or company and an insurance company. In the event of an unforeseen incident, the insurance company provides financial protection in the form of a fixed sum.
- This fixed sum is called the sum assured.
In return for this financial protection, the insurance company receives a fixed amount from the individual or company, which is known as the premium.
- The company providing insurance is the insurer.
- The party being insured is the insured.
- The legal contract is called the insurance policy.
In India, insurance policies are categorized into two main types:
- Life Insurance
- General Insurance
Life Insurance
Types of Life Insurance
Life Insurance includes:
- Term Life Insurance
- Unit Linked Insurance Plans (ULIPS)
- Whole Life Insurance
- Plans for Education
- Retirement Plans
Term Life Insurance
Term Life Insurance is a basic life insurance that covers a fixed term.
- The premium is also fixed.
- It offers a large insurance cover at a low premium.
- Upon the policyholder’s death, the sum assured is given to the nominee.
Many insurance companies offer payout options like:
- Lump sum
- Standard payouts
- Semi-annual payout
If the policyholder outlives the policy term, no amount is paid at maturity.
Whole Life Insurance
Whole Life Insurance provides coverage for the entire life.
- Maturity is considered at death or reaching 100 years of age.
- Insurance companies may invest on your behalf.
- Some policies cover life-threatening diseases.
- Some insurers return the entire premium if no claim is made until maturity.
- Insurers may provide bonuses, reducing the overall premium cost.
- A fixed premium must be paid until the policy’s maturity
Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans (ULIPs) are a combination of insurance and investment.
- They help achieve life goals while providing insurance cover.
- They offer death and survival benefits, along with potential bonuses.
- Bonuses are not guaranteed.
- You can enhance your plan with additional coverage options by paying a higher premium:
- You can choose when and how to pay premiums.
- The invested money is subject to market risks, but these plans typically offer higher returns.
Money Back Policy
In a money-back policy, the insurance company provides a fixed amount at predefined intervals during the policy tenure until maturity.
- For example, in a 25-year policy, the insurer might pay a fixed amount every five years.
- At maturity, you receive a maturity benefit along with a bonus.
- The bonus is not guaranteed.
- If the policyholder dies before maturity, the nominee receives the full sum assured, without deducting any previously paid amounts.
ULIPs vs Endowment Plans
| Feature | ULIPS | Endowment Plans |
| Investment | A portion of the premium is invested in the market | Acts as a saving plan, giving insurance |
| Returns | Market-linked returns, can be higher but not guaranteed | Death and survival benefits with a bonus |
| Investment Choice | You can choose the investment type | N/A |
| Risk | Higher risk due to market exposure | Less risky |
Pension or Retirement Plans
Pension Plans help accumulate funds over time.
- At retirement, you receive regular payments based on your accumulated contributions.
Child Plans
Child Plans help accumulate funds for your child’s future.
- The amount on maturity can be used for education fees or wedding expenses.
- These plans insure the life of the income-earning parent, not the child.
General Insurance
Types of General Insurance
General Insurance includes:
- Healthcare Coverage
- Automobile Insurance
- Homeowner’s Insurance
- Insurance Against Fire
Health Insurance covers expenses incurred due to medical care.
- Plans either pay the treatment amount directly or reimburse you.
- Covers hospitalization, critical illness treatment, medical bills, post-hospitalization expenses, and daycare procedures.
- You should review exclusions, pre-existing conditions, and waiting periods.
- Consider whether an individual or family plan suits you best.
- Medical tests are often required for policies after the age of 50.
Motor Insurance
Motor Insurance provides financial assistance if your bike or car is involved in an accident.
- Having motor insurance is legally required.
- Covers damage to your car from accidents, fires, vandalism, and natural disasters like earthquakes.
Travel Insurance
Travel Insurance is useful when traveling within India or internationally.
- Single Trip Insurance: Covers trips shorter than 180 days.
- Annual Multi-Trip Insurance: Covers every trip taken during a year.
- Student Travel Insurance: For students who are studying in another country.
- Senior Citizen Travel Insurance: For individuals over 60 years old.
Property Insurance
Property Insurance protects your home and its contents, whether you are an owner or a tenant.
- Covers damages from theft, fire, floods, and earthquakes.
- Provides financial assistance.
- Can be taken for homes, shops, or buildings.
For businesses, there are commercial insurance policies, and for crop losses, there is crop insurance.
Asset & Pet Insurance
- Asset Insurance policies can help cover the repair costs of electronic gadgetsLike TVs, mobile phones, and refrigerators.
- Pet Insurance can help reduce expenses on pet illnesses and hospitalizations.
Tax Benefits
Insurance provides financial protection and offers tax exemptions on premiums for life and health insurance.
- Life insurance policies with an annual premium exceeding 5, 000, 000 rupees are subject to income tax on maturity amounts.
- This tax applies to policies taken after April 1, 2023.
It’s advisable to research and consult experts before purchasing an insurance policy.
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