First we know about Insurance meaning. In life, unplanned expenses are a bitter truth, eventually if you are thinking that you are financial capable, a sudden expenditure can significantly hamper this security. Depending on the extent of the emergency, such instances may also leave you in debt.
Insurance coverage can be defined as a contract in the form of a financial protection policy. This policy covers one’s financial risks due to unforeseen contingencies. The insured is the policyholder while the insurer is the insurance providing company/insurance carrier/underwriter. Insurance companies in many cases provide financial coverage or reimbursement to the policyholder.
The policyholder pays a fixed amount known as ‘premium’ to the insurance company against which the latter provides the insurance cover. The insurer guarantees that it will cover the loss of the policyholder subject to certain terms and conditions. The premium payment determines the sum assured for the insurance coverage or ‘policy limit’.
Benefits of insurance coverage
Insurance policies serve various functions and come with many benefits. Below are some of its most basic benefits as well as some minor and outstanding extras. The basic functions of insurance coverage are:
Provides Security
Insurance coverage mitigates the effects of losses in dangerous situations. It provides financial compensation during financial crisis. It not only protects the insured from financial crisis but also controls the mental stress arising from it.
Provides certainty
Insurance coverage provides a sense of assurance to policyholders. The insured pays a small portion of the income for the certainty that it will help in the future. Therefore, there is a certainty of handsome financial assistance against the premium. This policy will protect the buyer against accidents, risks or any weaknesses.
Risk Sharing
The way an insurance policy works makes it a cooperative plan. The insurer is unable to pay out of its own capital. An insurance company pools in collective risks and premiums because it covers a large number of at-risk people. Payments to those claiming insurance coverage are made from this fund. Thus, all policyholders actually share the risk of suffering a loss.
Value at Risk
An insurance policy assesses the amount of risk and also anticipates its various causes. It assesses the amount for insurance coverage and premium payment amount based on risk value. It protects against unforeseen events and consequential losses.
The above were the primary benefits of an insurance coverage policy. Apart from the above, it also has some additional benefits and secondary functions that it performs as mentioned below:
Capital Formation
Funds generated from various premiums act as a pooled investment for the insurance company. Insurance companies invest this lump sum in money market instruments. For example, in stocks, mutual funds and other productive channels. It helps in generating revenue and profit for the business. It protects against capital loss for the company.
Economic Devlopment
Insurance policies mobilize household savings to provide financial stability. It also provides for reduction of loss due to loss or destruction to the insured community. It not only spreads risks evenly but also promotes trade and commerce using funds.
Saving Habits
Insurance policies help individuals to develop saving habits. They keep a portion of income to pay premiums which will act as a hedge against unknown future circumstances. Many insurance plans come in the form of insurance-cum-savings or insurance-cum-investment plans. It encourages people to save and invest.
There is a wide range of insurance policies, each aimed at protecting some aspect of your health or property.
The Types of Insurance in India
- General Insurance
- Life Insurance
Let’s take a closer look at the different types of insurance policies:
1. General insurance
A general insurance policy is one of the types of insurance that provides coverage for losses other than the death of the policyholder. Overall, general insurance includes various types of insurance policies that provide financial protection against losses due to liabilities such as bikes, cars, homes, health, and so on. These different general insurance types of insurance policies include:
Following are some of the types of general insurance available in India:
- Health insurance
- Motor insurance
- Home/Property Insurance
- Fire insurance
- Travel insurance
A. Health Insurance
Health insurance is a type of insurance policy that covers expenses due to medical care. Health insurance plans provide payment or reimbursement for treatment of illness or injury. Different types of insurance policies cover different medical care expenses.
In general, it provides protection:
- a) Hospitalization
- b) Treatment of serious diseases
- C) Post-hospitalization medical bills
- d) Day-care procedures
Some types of health insurance plans also cover the cost of patient treatment and pre-hospital expenses. The rising cost of healthcare in India is making health insurance a must. Different types of health insurance plans available in India include,
- 1) Individual Health Insurance: Provides coverage to only one individual.
- 2) Family Floater Insurance: Allows your entire family to get coverage under one plan, which usually includes husband, wife, two children.
- 3) Critical Illness Cover: A special type of health insurance that provides coverage against life-threatening diseases such as stroke, heart attack, kidney failure, cancer, and so on. Policyholders receive a lump sum upon diagnosis of a serious illness.
- 4) Senior Citizen Health Insurance: These types of insurance plans cover all people above 60 years of age.
- 5) Group Health Insurance: Provided by an employer to its employee.
- 6) Maternity Health Insurance: This type of insurance covers medical expenses in the prenatal, postpartum and postpartum phase, providing protection to both the mother and the newborn.
- 7) Personal Accident Insurance: These types of insurance plans cover financial liabilities arising out of accidental injuries, disability or death.
B. Motor Insurance
Motor insurance refers to a policy that provides financial assistance in case of accidents involving your car or bike. Motor insurance can be obtained for three categories of motorized vehicles, including:
Car Insurance – Individually owned four-wheeler vehicles are covered under such policies.
Two-Wheeler Insurance – Individually owned two-wheeler vehicles, including bikes and scooters, are covered under these plans.
Commercial Vehicle Insurance – If you have a vehicle that is used commercially, you need to insure it. These policies ensure that your business automobile stays in top shape, reducing damages significantly.
Benefits of Motor Insurance Policy
Prevents Legal Trouble – Helps you avoid any traffic fines and other legalities you would otherwise need to endure.
Covers all third-party liability – If you injure someone or damage someone’s property during a vehicle accident, an insurance policy helps you deal with the financial loss effectively.
Financial assistance for repairing your own vehicle – After accidents, you need to spend a significant amount of money on repairing your own vehicle. Insurance plans limit such out-of-pocket expenses, allowing you to undertake repairs immediately.
Theft/Damage Cover – If your vehicle is stolen, your insurance policy will help you reclaim a portion of the on-road value of the car/bike. You can expect similar assistance if your vehicle is damaged beyond repair due to accidents.
C. Home/Property Insurance
As the name suggests, a home insurance policy provides comprehensive protection to the contents and structure of your home against any physical destruction or damage. In other words, this type of insurance will provide coverage against any natural and man-made calamity, such as fire, earthquake, tornado, theft and robbery.
The different types of home insurance policies include:
1) Home Structure/Building Insurance – Protects against damage to the home structure during any calamity.
2) Public Liability Coverage – The insured provides coverage for any damage caused to guests or third parties on the residential property.
3) Standard Fire and Special Perils Policy – covers losses due to fire, natural calamities (eg, landslides, rockslides, earthquakes, storms and floods), and non-social man-made activities (eg, explosions, strikes) covers, and riots).
4) Personal Accident – Provides financial coverage to you and your family against any kind of permanent disability or sudden death of the insured, anywhere in the world.
5) Burglary and Theft Insurance – Provides compensation for stolen goods in case of theft or burglary.
6) Contents Insurance – Indemnifies for damage to furniture, vehicles and other equipment in case of fire, theft, flood or storm.
7) Renter’s Insurance – Provides you (as the tenant) with financial protection against any damage to personal property while you are living in a rental property.
8) Landlords Insurance – Provides you (as the landlord) with coverage against contingencies such as public liability and loss of rent.
Read More: Protect Your Home with the Right Insurance
D. Fire Insurance
Fire insurance policies are different types of insurance coverage that compensate for damages caused due to fire along with the sum insured. These types of insurance policies typically provide a significant amount of coverage to help both individuals and companies reopen their locations after extensive damage caused by a fire. This type of insurance also covers losses due to war risk, commotion, riots.
There are different types of fire insurance in India –
1) Valuable Policy
2) Specific policy
3) Floating Policy
4) Resultant Policy
5) Replacement Policy
6) Comprehensive Fire Insurance Policy
E. Travel Insurance
While talking about different types of insurance policies, one should not forget to know more about travel insurance plans. Such policies ensure the financial security of the traveler during the journey. So, when compared to other insurance policies, travel insurance is a short-term cover.
Depending on the provider you choose, travel insurance can offer financial assistance at various times, such as during baggage loss, trip cancellation, and more. Here is a look at some of the different types of travel insurance plans available in the country:
Domestic Travel Insurance – This is a type of travel insurance policy that protects you financially while traveling in India. However, if you plan to go out of the country for vacation, such a policy will not provide any assistance.
International Travel Insurance – If you are going out of the country, make sure you choose an international travel insurance plan. It allows you to cover unexpected expenses that may arise during your trip like medical emergencies, loss of luggage, loss of passport etc.
Home Holiday Insurance – When you are traveling with the family, your home remains safe and secure. Chances of burglary are always significant, which can lead to significant losses. Thankfully, with a home holiday insurance plan, which is often included in a travel policy, you are financially protected against such incidents as well.
Benefits of travel insurance
The following aspects are covered under a travel insurance plan:
Covers Flight Delays – Flight delays or cancellations can cause significant loss to the passenger. If you buy travel insurance, you can claim such financial loss from the insurance company.
Baggage loss/delay – Travel insurance allows you to claim financial assistance if your luggage is delayed or lost during a trip. With this amount you can buy some necessary things.
Reclaim lost travel documents – Visas and passports are essential documents during international travel. Choosing international travel insurance ensures that you have the financial backing you need to reapply for interim or replacement documents when necessary.
Trip Cancellation Cover – A sudden death in the family or a medical emergency can mess up your travel arrangements. Thankfully, international travel insurance plans support trip cancellation in such events. You can claim financial assistance to pay fines and cancellation charges for flights, hotels, etc.
2. Life Insurance
One can get life insurance to protect the family due to untimely death or death during the tenure of the policy. It provides a lump sum to the family when the insured person dies prematurely. This helps the grieving family combat the financial struggles that may arise in the absence of a breadwinner.
Read More : How to Choose Best Life Insurance Policy | Financial Source
Is term insurance the same as life insurance?
Term insurance is the most common form of life insurance where you pay a premium for a pre-determined term. If you die within the term, the sum assured is given to the family. But if you survive the tenure of the term policy, it remains with the insurance company. Unlike term plans, whole life insurance or endowment plans pay out on maturity as well as if you outlive the term. Some pension plans or post-retirement plans also have insurance coverage. One has to pay the premium till a certain time. You will receive the promised amount on maturity. The family gets money on the premature death of the insured.
