What is Insurance and what are the different types?

12 Feb 2019

Buying insurance is a critical part of our financial planning. Insurance – be it health, life or any other types – act as a safety net in case of an unfortunate event. And as much as it is important to have insurance, it is equally important to understand what exactly it covers and states. So to know more about insurance in general, continue reading this article.

What is the Insurance meaning and types of it?

Insurance is a contract between two parties – the insured (beneficiary) and the insurer (company). The insurer promises to pay a pre-fixed amount to the beneficiary upon the occurrence of a contingent event. To receive the amount, the beneficiary must make regular payments called premiums. Examples of contingent events are death, critical illness, theft, fire, earthquake, etc. An insurance policy can be taken by an individual as well as a corporate entity for various risks associated.

What are the different types of insurance?

Ideally, there are two types of insurance policy – life insurance and general insurance, which can be again dissected in various other categories. The other types of insurance are term insurance, money back policies, endowment policy etc. And the types of general insurance can be, health, auto, home, etc.

Life Insurance

Life insurance financially protects your family upon your early death. Like any other insurance product it is a contract between the policyholder and the insurer. A regular premium is paid to the insurance company for a specific number of years. In return the insurance company pays a sum assured to the family if the person dies during the policy tenure. There are some life insurance products that also pay you a lump sum at the end of the policy tenure.

Term Plan: A term insurance policy is a type of insurance policy which gives full life cover. For this, you pay a premium to an insurance company for a specific number of years and if you die during the policy tenure, then the insurer pays you the insured money. A term plan does not come with any maturity benefit, but the premium you pay is much less compared to other life insurance products in the market.

Endowment Policies:This type of insurance is a combination of savings and protection plans. So, apart from paying the nominee a lump sum amount in case of early death of the policyholder, such type of insurance policy also pays lump sum payout as the maturity benefit if the policyholder survives the policy tenure.

Money Back policy: Just like endowment plans, money back policy is a type of insurance where savings and protection plans are combined. Under this, a portion of the sum assured is paid at a regular interval during the policy tenure. The remaining amount is paid at maturity along with the bonus. Also, in case of an early death of the policy holder, a lump sum amount is paid to him or her.

Unit Linked Insurance Plans (ULIPs):Now, unit linked insurance plan is a type of insurance where market-based investment and insurance are combined. These investments are made in debt and equities by the insurance provider. It is the decision of the policyholders whether he/she wants to invest in debt or equity and in what proportion. Now since it is a market-linked investment, the maturity amount might vary and it is not completely guaranteed to return like Endowment Policies or Money Back policies. However, if he/she dies during the policy tenure, the insurer pays the nominee the sum assured.

General Insurance:

Any non-life insurance policy is categorized under the umbrella bucket of general insurance. Typically, general insurance policy is a type of insurance which is for a shorter duration as compared to life insurance policies. Popular general insurance policies include the following-

Health insurance:This type of insurance policy is meant to cover the costs which are associated with the health of the individual or the family members. The policy can cover the costs incurred for the treatment of specified critical illness, hospitalization charges, day-to-day care at medical centres etc. Given the lifestyle that we lead, health insurance is a must in today's time.

Auto insurance:It is important to protect your two-wheeler or four-wheeler against the risk of theft, own damage due to accidents and from calamities (both natural and man-made) using a motor insurance policy. It is a type of insurance where protection arising from third-party liability (which is mandatory as per the Motor vehicle Act) is also provided.

Home insurance:A home is one of our most cherished possessions. Therefore, it is important to protect our house from any damage that may be caused due to accidents or calamities by way of a home insurance policy.

What are the tax benefits associated with insurance?

The primary reason for people to opt for any types of insurance policy is to avail the host of tax benefits that come with it. We have set out below the key benefits that you can receive on your taxation:

If you take a health insurance policy, the policy payments for self or family will provide you with a tax deduction of Rs 25,000. In case of premium payment for parents who are below 60 years old, the tax deduction is of Rs 25,000. If your parents or family members are above the age of 60 years, an amount of Rs 50,000 is eligible for a tax deduction. In addition to the above, health insurance policies in case of Hindu Undivided Family (HUFs) is available for a tax deduction of Rs 25,000 where the premium is paid for the health insurance of one of the members of the HUF. Expenditure incurred for any preventive health check-up is covered under health insurance and makes you for a tax deduction of Rs 5,000 whether the check-ups is for yourself or your spouse or children or parents.

Conclusion

Given the plethora of options available in the market, you should choose well. At Liberty General Insurance, we have different types of insurance policies like the car insurance, two-wheeler insurance, health insurance, as well as insurance for individual personal accidents. The company also offers other products. To know more, click here

Disclaimer:For more details on risk factors, terms & conditions please read the sales brochure carefully before concluding a sale. *The discount amount will vary subject to vehicle specification and place of registration.