General Insurance: Meaning, Types and How it Works?

Insurance is an essential financial product for every individual. While you may be familiar with life insurance, there is a whole other category of insurance that many people often overlook — namely, general insurance. It’s possible that you may have a general insurance policy or two in your portfolio without really being aware that they belong to this category. 

So, in this article, we’ll take a closer look at what general insurance is, how it works, the different types of general insurance plans you must have and how they can benefit you.

What is General Insurance?

General insurance is any type of insurance that does not fall under the category of life insurance. It offers financial protection to the insured in case of any contingency or loss associated with non-life assets. They may include health, vehicles, house properties and even travel. 

While this sums up what general insurance is, it’s important to understand that, unlike life insurance, this category of protection is vast and varied. Depending on which assets you own, the type of general insurance that you require may vary. To make an informed choice, it’s essential to understand the different kinds of coverage you can purchase. 

Types of General Insurance

Since there are various types of non-life assets, you can choose from different types of general insurance in India based on the asset that you want to cover. Here is an overview of the common types of insurance under this category. 

1. Health Insurance

Health insurance is a type of general insurance that covers financial contingencies related to your health. Some contingencies and expenses that are commonly covered by health insurance plans include accidents, hospitalisation, pre-hospitalisation expenses and post-hospitalisation costs. Additionally, this type of insurance may also cover the cost of surgery and treatments for certain specified illnesses. 

2. Vehicle Insurance

Also known as motor insurance, this type of general insurance covers losses and expenses related to your two-wheeler or four-wheeler. Vehicle insurance is typically of the following types:

• Third-Party Liability Cover

This type of insurance covers any liabilities you may incur towards third parties on account of your vehicle. For instance, if you have to compensate another rider due to an accident involving your vehicle, third-party vehicle insurance has that covered. 

• Own Damage Cover

Own damage insurance covers the costs of repairing your own vehicle following an accident or a natural disaster. This ensures that any damage to your vehicle is rectified without any major financial outlay. 

• Comprehensive Cover

A comprehensive vehicle insurance cover offers protection from financial liabilities incurred towards third parties as well as your own vehicle. While a third-party cover is mandated by law in India, a comprehensive cover offers more holistic benefits. 

3. Travel Insurance

While travel may not be a quantifiable asset, travel insurance offers financial protection on two other invaluable assets — your health and your life — whenever you travel. This type of general insurance is useful if you want financial protection in the case of contingencies like falling ill during a vacation or a business trip or even in the case of the traveller’s demise. 

4. Home Insurance

A home insurance plan, as the name indicates, covers any financial expenses or losses incurred due to emergencies involving your home. Some examples of contingencies covered include property damage due to fires, earthquakes and other natural or man-made disasters, burglary or theft and any other such emergencies. 

How Does General Insurance Work?

Now that you have a clear idea about what general insurance is and what the common types of general insurance are, let’s take a closer look at how this type of protection works. 

Like any other type of insurance, at its core, general insurance is also a financial protection product. When you purchase any general insurance plan, you must choose the amount of coverage, the tenure of the policy and the add-on riders you require, if any. Based on these factors and several other relevant parameters, the insurer will determine the premium to be quoted for the policy. 

You can customise the frequency of premium payment, depending on the type of policy and its terms and conditions. Once you make the first premium payment, the cover is activated. If any of the contingencies covered occur during the policy term, you need to raise a claim, after which the insurer steps in and offers financial payouts for the expenses or losses incurred. 

Many types of general insurance plans also require you to choose a deductible — which is essentially that part of the claim that you pay out of pocket. This effectively reduces the amount that the insurer needs to pay, thereby bringing down the risk they take on. If you choose a higher deductible limit, the premiums will be lower because you are taking over part of the risk yourself. 

Benefits and Features of General Insurance in India

General insurance policies are feature-rich and offer a plethora of benefits to the policyholder. Here’s a quick overview of some of the key advantages and features offered by these insurance policies. 

• Financial Protection 

General insurance policies are designed to financially compensate you for the losses you suffer due to certain events and incidents. The payout from the policies can help reduce or mitigate the negative impact on your finances due to unexpected events. 

• Comprehensive and Diverse Coverage

General insurance policies provide financial coverage for a wide range of areas such as travel, health, motor vehicles and property. Furthermore, you also get to enjoy comprehensive coverage against a substantial number of events, uncertainties and contingencies. 

• Liability Insurance 

In addition to providing coverage for damages to the insured product, general insurance policies also offer financial protection against third-party liabilities such as damage or injuries to third parties caused by the insured product. 

• Customisability 

One of the primary features of general insurance in India is customisability. You have the flexibility to choose the terms of the policy according to your needs. Right from the sum assured amount and tenure to the deductible amount and riders, you have complete freedom to choose the policy coverage. 

• No Claim Bonus 

Some general insurance policies offer a feature called No Claim Bonus (NCB). It gets activated if you don’t lodge a claim during a year and provides a discount on your general insurance premium at the time of renewal. Furthermore, the discount percentage increases with every consecutive year of zero claims, topping out at a maximum of 40% to 50% of the premium. 

• Cashless Claim Settlements

With certain general insurance plans like health insurance and motor vehicle insurance policies, you get to avail cashless claim settlements. In a cashless claim, the insurer pays the claim amount directly to the network hospital or motor vehicle garage, significantly reducing your financial burden. 

List of General Insurance Companies in India

Every entity providing general insurance in India must be registered with the Insurance Regulatory and Development Authority of India (IRDAI). As per IRDAI, there are 26 registered general insurance companies in the country as of November 2023. Here’s a list of 26 registered entities in alphabetical order. 

1. Acko General Insurance Limited
2. Agriculture Insurance Company of India Limited
3. Bajaj Allianz General Insurance Company Limited
4. Cholamandalam MS General Insurance Company Limited
5. ECGC Limited
6. Future Generali India Insurance Company Limited
7. Go Digit General Insurance Limited
8. HDFC ERGO General Insurance Company Limited
9. ICICI LOMBARD General Insurance Company Limited
10. IFFCO TOKIO General Insurance Company Limited
11. Kotak Mahindra General Insurance Company Limited
12. Kshema General Insurance Limited
13. Liberty General Insurance Limited
14. Magma HDI General Insurance Company Limited
15. National Insurance Company Limited
16. Navi General Insurance Limited
17. Reliance General Insurance Company Limited
18. Royal Sundaram General Insurance Company Limited
19. SBI General Insurance Company Limited
20. Shriram General Insurance Company Limited
21. Tata AIG General Insurance Company Limited
22. The New India Assurance Company Limited
23. The Oriental Insurance Company Limited
24. United India Insurance Company Limited
25. Universal Sompo General Insurance Company Limited
26. Zuno General Insurance Ltd. (formerly known as Edelweiss General Insurance Company Limited)

List of Documents Required for Buying a General Insurance Policy

The documents required for purchasing general insurance can vary depending on the type of policy and the general insurance company you opt for. Here’s a brief overview of some of the common documents you need to submit when buying general insurance in India. 

• Proof of identity 
• Proof of address
• Recent passport-size photographs
• Proof of bank account 

In addition to this, you will have to submit documents related to the asset you are buying the policy for. For instance, you need to submit the Registration Certificate (RC) of the vehicle in the case of a motor vehicle insurance policy. 

How To Raise a Claim on a General Insurance Policy?

If an event insured by a general insurance policy happens, you need to lodge a claim with the insurance provider to get financial compensation. There are two types of claims that you can raise – a reimbursement claim or a cashless claim. 

A reimbursement claim is where you pay for the damages out of pocket and then get the expenses reimbursed from the insurance provider. A cashless claim, on the other hand, is where the insurance company pays for the damages directly to the service provider. 

If you avail services from a non-network service provider, you can only lodge a reimbursement claim. However, if you avail services from a network provider, you get the option for cashless claims.  

To raise a reimbursement claim on a general insurance policy, you need to inform your insurer of the incident, fill out the claim form and submit the necessary bills and other documents as evidence of spending for the damages out of pocket. For a cashless claim, all you need to do is inform the insurer of the incident. The insurance company will directly get in touch with the service provider and settle the bills on your behalf.  

What Are the Different Types of Claim Ratios for General Insurance Policies?

Before you choose a general insurance provider, you need to look at a couple of claim ratios such as the Claim Settlement Ratio (CSR) and the Incurred Claim Ratio (ICR). Being aware of these two ratios can help you gain a deeper understanding of the insurance company and its health. Let’s delve deeper into each of these ratios and find out what they are. 

• Claim Settlement Ratio (CSR)

The Claim Settlement Ratio is a metric that indicates the number of claims settled out of the total claims received by an insurance company and is usually expressed as a percentage. For instance, if a general insurer has a CSR of 96%, it means that the entity settles 96 out of every 100 claims it receives. The higher the CSR, the better since it increases the probability of claim settlement. 

• Incurred Claim Ratio (ICR)

The Incurred Claim Ratio, on the other hand, is a metric that compares total claims paid with the total premiums received by an insurance company. The ideal ICR range is between 50% and 100%. An insurer may sometimes have an ICR of greater than 100%. However, it is undesirable since it effectively means that the insurance company collects more premiums than the claims paid out. 

What Are the Tax Benefits of General Insurance Plans?

Health insurance is the only type of general insurance in India that offers tax benefits. As per section 80D of the Income Tax Act, 1961, you can claim the premiums paid towards a health insurance policy for yourself and your parents as a deduction from your total taxable income. The maximum amount of premium that can be claimed under this section is as follows.  

By using the provision of section 80D of the Income Tax Act, you can reduce your overall taxable income by up to ₹1 lakh, which enables you to save taxes significantly. 

Difference Between General Insurance and Life Insurance

Life insurance and general insurance are the two broad insurance categories in India. Both of these types of insurance have different purposes and distinct aspects. Here’s a table outlining some of the most important differences between life and general insurance. 

Things to Remember while Buying a General Insurance Policy

Purchasing general insurance in India is a very important financial decision. One that should be made after thorough deliberation to ensure that it meets your needs. Let’s look at some key things you need to consider when buying a general insurance plan. 

• Sum Assured and Tenure 

Choosing the right sum assured and tenure is key to ensuring that the general insurance policy meets your specific needs. Make sure you identify the risks you want to protect yourself from before arriving at the tenure and sum assured amount. 

• Policy Terms and Conditions 

Reading through and understanding the various terms and conditions of the general insurance policy is crucial. Remember to look into the inclusions, exclusions, policy limitations and waiting period clauses since they’re likely to materially affect the coverage. 

• Information Disclosure

When filling out the general insurance proposal form, disclose all material information truthfully and honestly. This will ensure that you don’t run into any issues or delays when lodging a claim and reduce the chances of rejections significantly. 

• Network Providers 

In the case of health and motor insurance, check the list of network providers of the insurance company. The more the number of network providers, the better since you get to enjoy cashless claims and streamlined claim processing. 

• Available Riders 

Riders are optional add-ons that you can opt for when purchasing a general insurance policy. These add-ons enhance insurance coverage for a nominal additional premium. Make sure to check if the insurance company you opted for offers the riders you need. 

• Claim Settlement Ratio and Insured Claim Ratio 

As you’ve already seen, CSR and ICR are two of the most important ratios you need to factor in when purchasing general insurance in India. It is advisable to opt for an insurer with a high CSR and an ICR ranging between 50% to 100%. 

• Policy Comparison 

No two general insurance policies of the same type may offer the same benefits at the same premiums. It is important to compare plans of different insurers to ensure that you choose one that offers the best coverage at a premium you can afford.

Conclusion

This concludes the essential details about what general insurance is, how it works and the types of general insurance you can purchase in India. Also, now that you know how general insurance differs from life insurance, you can make informed decisions about including non-life coverage in your financial portfolio. Remember that the types of general insurance you choose to purchase should be aligned with the assets you own. 

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