Investing in a good insurance policy is one of the best ways to protect yourself and your family from life’s uncertainties. Simply put, an insurance plan is a legal agreement between you and an insurance company, where the insurer agrees to financially compensate you for the loss you or your family suffer due to an incident or event.
In India, there are different types of insurance offering financial protection against various events and incidences. Knowing and understanding what they are can help you make an informed decision. Continue reading to get to know more about the types of insurance policies you can purchase.
Different Types of Insurance
Insurance in India can be broadly categorised into two types – life insurance and general insurance. Here’s a comprehensive overview of each of these two types.
Life Insurance
Life insurance is a type of insurance policy where the insurer agrees to pay a certain sum of money in the event of the death of the policyholder. In exchange for this financial coverage, the policyholder is required to make regular payments, known as premiums, to the insurer. These premiums can be paid on a monthly, quarterly, semi-annual or annual basis.
The death benefit of a life insurance plan is paid to the individual listed as the nominee under the policy. The policyholder has the freedom to choose the nominee of the policy and can change the nominee at any point during the policy’s tenure.
Types of Life Insurance Plans
Life insurance in India can be sub-categorised into different types. Here’s a quick look at some of the most common types of insurance policies available.
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Endowment Plans
Endowment plans are a type of life insurance that not only provides life coverage but also has a savings element. In the case of death during the tenure of the plan, the death benefit chosen at the time of policy purchase is paid out to the nominee of the policy.
However, if you survive till the end of the tenure, you become eligible for a maturity benefit. The maturity benefit is essentially a lump sum amount that consists of all of the premiums paid by the policyholder plus bonuses and loyalty additions.
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Term Insurance
Term insurance is the most basic life insurance policy. Also known as a pure insurance plan, term insurance only provides a death benefit and doesn’t offer any maturity benefits. This effectively means that if you survive till the end of the term, you will not receive any payout from the insurer.
However, one of the major benefits of these types of insurance is that they usually charge very low premiums compared to other plans. In fact, out of all the kinds of insurance, term insurance is the most affordable.
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Whole Life Insurance
Generally, most types of insurance policies are valid only for a particular tenure, say 10, 20 or 30 years. Whole life insurance, however, remains active throughout your entire life or until you reach 99 years of age. With life coverage lasting throughout your entire life, you won’t have to renew your policy at all.
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Unit-Linked Insurance Plans (ULIPs)
A Unit-Linked Insurance Plan (ULIP) is a life insurance policy offering dual benefits of life coverage and investment. A part of the premium you pay towards a ULIP is used to provide life insurance coverage, whereas the remaining amount is invested in a chosen mutual fund.
In the case of death during the tenure of the ULIP, the predetermined death benefit is paid out to your nominee. And if you survive till the end of the tenure, the amount invested in the chosen mutual fund along with the returns it generated through the years are paid out to you as maturity benefits.
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Pension or Annuity Plans
Annuity plans are special types of insurance plans that provide a regular source of income after a certain specified tenure. In the case of death, all of the premiums you pay will be returned to your nominee.
With annuities, you have the freedom to receive the regular payouts immediately (immediate annuity) or at a later point in time (deferred annuity). Also, you can choose to receive the payouts on a monthly, quarterly, semi-annual or annual basis.
General Insurance
All insurance policies other than life insurance are termed general insurance. They’re designed to offer financial protection for you and your family against a contingent event. If the contingent event against which you’re insured happens, the insurer will be obligated to financially compensate you for the loss you suffer.
Types of General Insurance Plans
General insurance plans are sub-categorised into different types depending on what is insured. Here’s a quick overview of some of the most common types of insurance policies under this category.
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Health Insurance
Health insurance is a type of insurance plan that offers financial protection from the medical expenses you incur with the treatment of an illness, disease or ailment. One of the most important types of insurance policies in India, health insurance can significantly reduce your out-of-pocket costs if you ever have to undergo a medical treatment, surgery or hospitalisation.
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Motor Insurance
As the name implies, motor insurance provides financial coverage against accidents and other mishaps involving your motor vehicle. There are two different types of motor insurance policies you can opt for – third-party plans and comprehensive plans.
Third-party motor insurance only provides coverage against third-party liabilities arising due to an accident caused by your motor vehicle. Comprehensive insurance, on the other hand, covers third-party liabilities as well as damages to your vehicle due to an accident, mishap or natural calamity.
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Home Insurance
Home insurance provides financial compensation in the event of both partial or total damage to your home due to man-made or natural disasters or calamities. In addition to damages to your house, some home insurance policies may also provide financial coverage for the contents inside your home at the time of damage.
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Travel Insurance
Travel insurance offers financial compensation for losses you suffer while travelling domestically or internationally. Travel insurance plans cover a wide range of situations including expenses in connection with medical emergencies, trip cancellations, flight cancellations and loss of baggage or passport.
Conclusion
Well, there you have it. These are some of the most common types of insurance policies you can find in India. In addition to the ones explained above, there are other types of insurance like crop insurance, cyber insurance and fire insurance, among others.
When purchasing an insurance policy, always make sure to choose the right coverage amount. Opting for low coverage may leave you exposed to financial risks, whereas choosing a high coverage may make the premium unaffordable.
FAQs
How much insurance coverage should I opt for?
The amount of insurance coverage you need to choose is dependent on a plethora of different factors. This includes the type of insurance plan, financial requirements, income and liabilities, among others.
What are insurance riders?
Insurance riders are add-ons that you can opt for at the time of policy purchase by paying a nominal additional premium. These add-ons essentially enhance existing coverage or provide coverage for situations and incidences not typically covered by your base policy.
Is it advisable to choose all of the available insurance riders when purchasing an insurance plan?
No. When purchasing an insurance plan, it is always advisable to only choose riders that are useful to you. Selecting all the available riders can drive up the insurance premium and make it unaffordable.
Which is more important - life insurance or health insurance?
Health insurance protects you from the financially draining effects of medical treatment, whereas life insurance protects your family financially in the event of your death. If possible, you should always look to invest in both of these types of insurance policies.
Can I claim the premium paid towards a motor insurance policy as a tax deduction?
No. Motor insurance premiums cannot be claimed as a deduction from your total income. You can only claim life insurance premiums (under section 80C of the Income Tax Act, 1961) and health insurance premiums (under section 80D of the Income Tax Act, 1961) as a deduction.