Types Of Insurance: Different Types Of Insurance Policies In India

Life can be plagued by certain unforeseen events that carry the risk of draining the finances of a person, their family or an organisation. While the physical, material and emotional void caused by such events may not be reversible at times, insurance policies are a saver as far as finances go, as they provide a certain financial cover to safeguard the policyholder against such events.

In this article, we try to uncover the meaning of an insurance policy, the need to have an insurance policy, the various types of insurance policies, and try to answer certain questions related to an insurance policy in India.

What is an Insurance?

An Insurance policy is defined as a contract between an individual/organisation(called the policyholder) and a company through which the company guarantees the policyholder financial protection in case of a predefined event, in return for a fixed amount of money (premium) paid periodically by the policyholder.

Why is having an Insurance Policy recommended?

There are certain unforeseen events in life that can hamper a person/organisation's financial condition. For this reason, insurance policies are always recommended to protect the policyholder against such losses and safeguard their assets to a certain degree.

Specific insurance policies also inculcate the habit of savings and provide the policyholder with freedom from financial responsibilities after a certain age.

What are the types of Insurance Policies in India?

Insurance policies typically cover an individual against any untimely and detrimental event that occurs in the case of life, health or costly material possessions of a person. India provides its citizens with an expansive range of insurance policies to safeguard certain aspects of their life.

Broadly, insurance types in India are as follows:

• Life Insurance
• Motor insurance
• Property insurance
• Travel insurance
• Health insurance
• Mobile insurance
• Cycle insurance; and
• Bite-size insurance

We will discuss each category of insurance in greater detail to let the reader gauge the need for the right kind of insurance for themselves.

1. Life Insurance

Probably the most essential insurance type, life insurance is an insurance contract that is offered by the insurer to the policyholder in which the insurer guarantees to pay a certain sum of money to the beneficiaries named by the policyholder, so when the latter dies, there is a return for the fixed sums of money(premiums) paid periodically by the policyholder during their lifetime. In this way, it guarantees a certain level of financial protection to the policyholder's family in case the policyholder dies.

There are various types of life insurance policies in the country:

• Term Plan: Term life insurance can be claimed in case of the death of the policyholder within the specified term. On the expiration of the term, the policyholder has the option to renew the policy for another term, convert the policy to whole life insurance, or allow the policy to expire.
• Permanent Life Insurance Plan: Whole life insurance plan is the term to broadly summarise the life insurance policies that do not expire or are sometimes restricted to a tenure of 100 years. There are typically two types of life insurance:

1. Whole Life: Whole life insurance is a permanent life insurance plan in which savings will grow at a guaranteed rate.

2. Universal Life: Universal Life Insurance plans typically invest the savings in capital market instruments and thus, feature a different structure of premiums.

• Unit Linked Insurance Plans (ULIPs): A Unit Linked Insurance Plan (ULIP) is a combination of an insurance plan and an investment instrument as a portion of the premiums paid by the policyholder go towards covering the policyholder financially, while the remaining amount is invested according to a regulated framework in capital market instruments (equity and debt).
• Child Plan: Child Plans is another type of investment cum insurance policy, which creates a corpus over a fixed period to fund a child's financial requirements. On maturity, a lump-sum amount, called maturity benefit, can be claimed. In case of the death of the policyholder within the term of the child plan, the insurance company pays the nominee the maturity benefit.
• Retirement Plan: Retirement Plan or Pension Plans are investment plans that allocate a part of the policyholder's savings to accumulate over a period and provide them with a steady income on retirement.
• Endowment Plan: Endowment plan is an insurance type that provides the policyholder with a combination of an insurance cover and a savings plan. It helps them save over a particular period regularly and provides them with a huge sum on policy maturity, if the policyholder survives the policy term, or on death. Some policies also payout in case of a critical illness.
• Money-Back Plan: Also called survival benefit plans, these plans pay a certain percentage of the plan's sum assured at regular intervals.

2. Motor Insurance

A motor/automobile insurance is a policy purchased by vehicle owners to mitigate the repairment costs in case an accident occurs with a vehicle. The policyholder is required to pay annual premiums towards the policy. In case of an accident, the company pays partial or all the costs associated with fixing the damage to the vehicle.

There are three types of motor insurance:

• Car Insurance
• Bike/Two-wheeler Insurance
• Commercial Vehicle Insurance

3. Property insurance

A Property Insurance covers the policyholder against the risk of damage to property, such as a fire, some weather damage or theft. In an event such as theft, reimbursement is provided to the owner of the property in return for a premium that has been paid by the policyholder in fixed intervals.

Typical types of property insurance can include:

• Flood Insurance
• Earthquake Insurance
• Fire Insurance
• Home Insurance
• Shop Insurance
• Office Insurance etc.

4. Travel insurance

Travel insurance is a type of short-term cover that hedges the policyholder against financial losses that may occur in the case of an unforeseen event while travelling. Depending on the type of insurance chosen by a person, it provides financial aid in instances such as flight delays/cancellations, loss of baggage, trip cancellations etc.

The different types of travel insurance that can be availed in India are as follows:

• Domestic Travel Insurance
• International Travel Insurance
• Home Holiday Travel Insurance

5. Health insurance

Health insurance or Care Insurance covers the policyholder against unforeseen health events by paying, fully or partially, for the medical, prescription drug, surgical and sometimes dental expenses incurred from an illness or injury.

Types of Care Insurance include:

• Individual Health Insurance,
• Family Floater Insurance,
• Senior Citizen Health Insurance,
• Maternity Health Insurance,
• Personal Accident Insurance
• Critical Illness Cover

6. Mobile insurance

Since mobile phones are an integral part of our day to day, certain companies are also rolling out mobile insurance products that provide the policyholder with the required financial cover in case of loss, theft or damage to their phone.

7. Cycle insurance

Cycles come in a wide array of prices, and costly, geared cycles are being increasingly used these days for recreation as well as daily commutes, as traffic conditions get worse with increasing population. Cycle insurance equips the policyholder with the financial aid required in case of theft or damage to their bicycle.

8. Bite-size insurance

These are short-term insurance plans that provide the policyholder with minimised financial liability for a certain tenure, generally up to 1 year. They typically protect the person's finances from specific instances that occur during the specified tenure. For example, a person may choose to have an insurance cover for a year that would cover them against a certain disease, should they feel prone to it for that specified period.

Thus, a vast number of insurance policies in India provide their policyholders with the benefit of securing their financial position against a number of causes that carry the risk of damaging it. It is important that a person goes through them and enters into a policy that best fits themselves and their families/organisations. However, having a care insurance policy and a life insurance policy is regarded as an absolute necessity, as health and life are the most important aspects of a person's life. Furthermore, it is often mandated to have auto insurance in case the person has a vehicle of their own.

Also read:

1) What is a business loan? How to apply for a business loan?
2) How To Get Small Business Loan From Government?
3) 7 Different Types of Loans for Your Small Business
4) Which Are the Different Types of Loans in India?
5) OkCredit: Simple, Paperless & Secure solution for businesses

FAQs

Q. Are insurance policies in India regulated?

Ans. Yes. Insurance policies in India are regulated by the IRDAI (Insurance Regulatory and Development Authority of India), which comes under the Ministry of Finance.

Q. What kind of tax benefits do I get by opting for an insurance policy?

Ans. Life and Health Insurance policies provide policyholders with certain opportunities to claim tax exemptions. Life insurance premium payers in India are eligible for tax benefits in India under Section 80(C) and 10(10D) of the Income Tax Act.

Similarly, health insurance premium payers can avail of a tax benefit of up to Rs.1 Lakh on the premium payment of their health insurance policies under Section 80D of the Income Tax Act.

Q. What should be the criteria while choosing an insurance policy provider?

Ans. Coverage, history, service and support quality, customer reviews, pricing, claim settlement ratio etc., are some of the criteria to be looked at while choosing an insurance policy provider.

Q. What is a No-Claim Bonus?

Ans. No Claim Bonus is a discount offered to policyholders for every year that they do not claim the benefits on their health insurance or motor insurance policy. This discount can be claimed while renewing the policy.

Q. What is the claim settlement ratio?

Ans. The claim settlement ratio is the ratio of the total number of claims settled by an insurer against the total number of claims raised. Insurance companies with a higher value of claim settlement ratio should be preferred as they provide the policyholder with a lesser chance of their claim being rejected.