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All About Types of Insurance Policies in India

TeamAckoMay 24, 2024

Risk is everywhere. Whether driving a car, visiting a new country, or even simply lazing at home, an emergency can knock on your door anytime. It is precisely here that the role of insurance policy becomes important. An insurance policy is an agreement between the insurance company and an individual (known as policyholder) that states to protect the latter from financial loss in case of unpredictable events in life. There are basically two types of insurance: life insurance and general insurance. Read on to learn more.

Contents

Types of Insurance Policy That You Need to be Aware of
Types of Life Insurance Plans Available in India
Types of General Insurance
What Does Insurance Not Cover?

Types of Insurance Policy That You Need to be Aware of

The two broad types of insurance are:

Life Insurance

Life insurance is a contract that offers financial compensation in case of death or disability. Some life insurance policies even offer financial compensation after retirement or a certain period of time. Life insurance, thus, helps you secure your family’s financial security even in your absence. You either make a lump-sum payment while purchasing a life insurance policy or make periodic payments to the insurer. These are known as premiums. In exchange, your insurer promises to pay an assured sum to your family in the event of death, disability or at a set time.

The different types of life insurance policy are as follows:

Term insurance
Whole life insurance
Guaranteed life insurance
Unit-linked insurance plan
Retirement plans
Child plans
Endowment policy

General Insurance

A general insurance is a contract that offers financial compensation on any loss other than death. It insures everything apart from life. A general insurance compensates you for financial loss due to liabilities related to your house, car, bike, health, travel, etc. The insurance company promises to pay you a sum assured to cover damages to your vehicle, medical treatments to cure health problems, losses due to theft or fire, or even financial problems during travel. Simply put, a general insurance offers financial protection for all your assets against loss, damage, theft, and other liabilities.

Following are the different types of general insurance policy:

Health insurance
Motor insurance
Travel insurance
Home insurance
Fire insurance

Importance of Insurance

Let us understand why it is important to buy insurance policy with the help of four different scenarios:

Scenario 1	Scenario 2	Scenario 3	Scenario 4
Your childhood friend suddenly meets with an accident. He passes away, leaving behind a wife, two kids and one elderly parent.	You catch cold, but work keeps you busy. Eventually, the cold worsens into Pneumonia, and you need to be admitted to the ICU for a week.	You are going to Spain for the first time. You have a stop-over at Abu Dhabi. Your first flight gets delayed. You miss the second flight and get stuck.	You are driving to work like every other day. But the road has oil spill. A car spins out of control and hits yours. Your bumper and headlights get hurt.
Your friend had minimal savings, barely enough to cover two months’ expenses.	It costs you Rs. 60,000 for the hospital charges. And Rs. 10,000 for the treatment.	It costs Rs. 28,000 to fly to Spain. Rs. 20,000 to return to India. Plus, the loss from hotel booking cancellations.	Your bumper costs Rs. 10,000 to repair. The headlights another Rs. 7,000.
A Rs. 7,500 life insurance could have ensured they had Rs 10 lakh in hand.	A Rs. 3,500 health insurance could have ensured you paid 0 from your pocket.	A travel insurance worth Rs. 500 could have helped pay the travel bills.	Rs. 7,500—that’s how much a car insurance costs every year which could have paid for the damages.

As you can see, there’s always a need for insurance, be it a life insurance or otherwise.

Types of Life Insurance Plans Available in India

Listed below are the different types of life insurance policy:

Term Insurance

It is the most basic type of insurance and provides coverage to your family with a lump-sum amount in the case of your death. If you survive the term, no money will be paid to you or your family. However, when you buy the Return of Premium Term Insurance plan, you get the complete premium paid back at the end of the policy term.

Whole Life Insurance

As the name suggests, this plan provides coverage for a lifetime until you are 99 or 100 years old. Your family receives a certain sum of money in case of your unfortunate demise. Along with death benefits, you will also get a bonus and avail of a loan facility with this plan.

Endowment Policy

Like a term policy, an endowment policy is valid for a certain period. In the event of your death, a lump-sum amount will be paid to your family. However, unlike a term plan, you get the maturity proceeds after the term period when you have an endowment policy.

Money-back Policy

A certain percentage of the sum assured will be paid to you periodically throughout the term as a survival benefit. After the expiry of the term, you get the balance amount as maturity proceeds. Your family gets the entire sum assured in case of death during the policy period, regardless of the survival benefit payments made.

Unit-linked Insurance Plans (ULIPs)

ULIPs provide dual benefits: insurance and investment. A part of your premium goes toward your insurance coverage; the remaining amount is invested in debt and equity. This means that a lump-sum amount will be paid to your family in the event of your unfortunate death.

Child Plan

This ensures your child’s financial security. If you die during the policy term, your child will receive a lump-sum amount. The insurer pays the premium amounts after your death. Your child will continue to receive a certain sum of money at specific intervals.

Pension Plans

Pension plans are one of the best ways to build your retirement fund. You can get a regular pension amount even after retirement; in the case of your death, your family or the nominees can claim the sum assured.

Types of General Insurance

Here are the different types of General Insurance policy:

Health Insurance

This type of general insurance covers the cost of medical care. It pays for or reimburses the amount you pay towards the treatment of any injury or illness. A health insurance plan typically provides coverage for pre- and post-hospitalisation, day care procedures, medications, surgery costs, health check-ups, and more.

To boost the benefits of your health insurance plan, you can also opt for add-on benefits like:

Maternity cover: This add-on covers you for the costs related to childbirth. This includes pre-delivery check-ups, hospitalisation during delivery, and post-natal care.
Pre-existing diseases cover: With this cover, you will also get coverage for diseases that you had before buying the health insurance policy.
Consumables cover: Consumables like syringe, cotton, PPE kits, bandages, gloves, and others get covered with this add-on.

Your health insurance can also help you save on taxes. The premium you pay towards your health insurance plan lets you save tax of up to Rs. 75,000.

Motor Insurance

Motor insurance is for your car or bike, what health insurance is for your health. It is a general insurance cover that offers financial protection to your vehicles from loss due to accidents, damage, theft, fire, or natural calamities. You can also get motor insurance for your commercial vehicles. Moreover, In India, having at least a third-party insurance policy is legally required. It is of two types: car and bike insurance, which is further classified into Comprehensive, Standalone Own-damage, and Third-party motor insurance policy.

Travel Insurance

A travel insurance compensates you or pays for any financial liabilities arising out of medical and non-medical emergencies during your travel abroad or within the country. This type of general insurance plan typically provides coverage for loss of baggage, emergency medical expenses, loss of passport, hijacking, delayed flights, accidental death, etc.

There are different types of Travel Insurance

International Travel Insurance
Domestic Travel Insurance
Student Travel Insurance
Family Travel Insurance
Single-trip Travel Insurance
Multi-trip travel insurance

Home Insurance

Home insurance is a cover that pays or compensates you for damage to your home due to natural calamities, man-made disasters, or other threats. It covers liabilities due to fire, burglary, theft, flood, earthquakes, and sabotage. It not only offers financial protection to your home but also takes care of the valuables inside the property. Some common types of home insurance are Standard fire and special perils policy, Public liability coverage, Home structure insurance, etc.

Fire Insurance

Fire insurance pays or compensates for the damages caused to your property or goods due to fire. It covers the replacement, reconstruction, or repair expenses of the insured property and the surrounding structures. It also covers the damages caused to a third-party property due to fire. In addition to these, it takes care of the expenses of those whose livelihood has been affected due to fire outbreak.

What Does Insurance Not Cover?

Your policy may not cover liabilities in certain situations. These are known as exclusions.

Let’s have a look at a few of them.

Life	If death occurs due to: -Alcohol or drug abuse -War or terrorism -Suicide or self-inflicted injuries -Gross negligence or carelessness
Car	-Damage caused when the policy is not active -Loss of personal belongings kept in the car -Damage to a car that is not insured -Damage caused when driving without a license -Damage caused when driving under the influence of alcohol or drugs -Damage due to wars, mutiny or nuclear risks
Bike	-Damage due to war, mutiny or nuclear risk -Normal wear and tear and general ageing -Tyre or tube punctures. (If, however, your two-wheeler is damaged at the same time, you will be compensated for 50% of the cost of repair or replacement) -Mechanical or Electrical breakdown -Any loss or damage caused outside India
Health	-Hospitalisation due to war or related activities -Medical condition due to abuse of intoxicants or hallucinogenic substances -Any medical condition existing before buying the policy during the waiting period -Non-allopathic therapies such as acupuncture, yoga, naturotherapy, etc. -Diagnostic charges if the reports do not confirm the existence of the covered disease -Self-inflicted injuries
Travel	-Travelling against the advice of the physician -Baggage delay for less than 24 hours -Psychological illness or self-inflicted injuries during your trip -War or civil unrest in international locations -Participation in hazardous sports like bungee jumping, parachuting, etc.
Home	-Wilful destruction of the property -Damages caused due to wear and tear -Damages caused due to war -Loss of money kept inside the property -Loss to a property that has remained unoccupied for a certain period
Fire	Loss or damage caused to the property due to: -Nuclear perils -War or related activities -Pollution or contamination -Mechanical or electrical breakdowns

FAQs

What are the two main types of insurance?

The two main types of insurance are general and life insurance.

Which insurance policy does health insurance fall under?

Health insurance falls under General Insurance.

Which type of insurance is the most important?

All types of insurance are equally important; you should choose the right one depending on your requirements. For instance, if you want to secure your family’s future, you should buy a life insurance policy.

What are the factors that I need to consider while buying an insurance plan?

Some of the factors you need to check while buying an insurance plan is the claim settlement ratio, policy inclusions and exclusions, add-ons availability, etc.