What is Insurance?
Insurance is a financial arrangement that provides protection against the risk of financial loss. It works by transferring the risk of potential loss from an individual or entity to an insurance company in exchange for payment of a premium.
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Types of Insurance
Insurance is an effective risk management tool that helps individuals and enterprises protect themselves from unexpected expenditures or events. It is known that life is uncertain which makes being insured all the more important. Humans do not have any control over uncertainties and emergency situations.
However, insurance can help in transferring the financial risk. Although there are multiple types of insurances that serve different purposes and each product has its own set of terms and conditions, all the policies can be categorised into one of the two important categories of insurance are:
Life insurance/Personal Insurance
In case of life insurance, the insurer insures the life of an individual. It means that the subject matter of insurance, here, is a human being’s life. At the time of death of the insured or after the end of a specified period, the insurer will pay the fixed amount of insurance to the insured or his nominee.
The purpose of life insurance is to protect the family of a person in the case of his death or to provide the insured with a particular sum of money that he may use in his old age or when he is not able to work anymore. Personal insurance is divided into three categories namely life insurance, personal accident insurance and health insurance.
General insurance
All types of insurance that do not come under life insurance are called a general insurance and include property insurance, liability insurance, motor insurance, fire insurance, marine insurance, etc.
What is Life Insurance?
A life insurance is a contract between an insurer and a policyholder where the insurer promises to pay a particular sum of money in case of death of an insured person or after the policy period in return for a premium that is paid by the policyholder. In case of death of insured, the sum is paid to the named beneficiary or nominee. However, if the policy matures and the insured is alive, he gets the sum from insurer.
The amount of premium to be paid for a life insurance policy depends on factors such as sum assured, age, gender, coverage, riders and individual characteristics such as tobacco/alcohol consumption. Amount of premium is fixed by the insurance companies and the sum for the same insurance product may vary for different policyholders. The premium calculation changes depending on variables and the frequency of premium payments.
Advantages of Life Insurance
Some of the most important advantages of having an insurance policy are as follows:
- Death benefit
- Good Return on Investment (ROI)
- Tax benefits
- Loan availability
- Financial planning for different stages of life
Death benefit
If something unforeseen happens to the insured, resulting in the income loss for their family, the insurance company compensates them in the form of a death benefit. The nominee of the insured receives the sum assured as well as the bonus collected over a period of time.
Good Return on Investment (ROI)
Most of financial advisors suggest that life insurance policy is an important part of investments made by investors. Insurance not only safeguards the families of the insured financially, it also supports the insured when they are unable to work by providing substantial returns on their investment. In India, several life insurance policies also provide good return in the form of a bonus.
Tax benefits
One of the major benefits of life insurance is that it offers various tax advantages. For example, a salaried employee who is also a policyholder can claim a deduction under Section 80C under Income Tax Act, 1961. Currently, a maximum tax deduction of `1,50,000 can be claimed under this section.
Loan availability
In case of emergencies, there is an option to seek loans against life insurance coverage. Almost all of India’s leading insurance companies now provide policyholders option to take loan. Depending on policy requirements, the policyholder can the required amount of cash.
Financial planning for different stages of life
Insurance is instrumental in planning the finances for different stages of life.
Types of Life Insurance
Life insurance is a contract between an insurance policy holder and an insurance company in which the insurer agrees to pay an amount of money in exchange for a premium if the covered person dies or after a certain length of time.
You pay premiums for a particular period at ICICI Prudential Life Insurance and we give you with a Life Cover in exchange. This Life Cover protects your loved ones future by providing a lump sum payment in the event of a tragic incident. You may be awarded a Maturity Benefit at the conclusion of the insurance term in some plans.
Followings are the various types of life insurance:
- Term life insurance
- Whole life insurance
- Unit Linked Insurance Plan (ULIP)
- Endowment plan
- Money back plans
- Group life insurance policies
Term life insurance
In case of term life insurance, the policyholders pay premium for the insurance. If the policyholder dies before the maturity of the term policy, the nominee or beneficiary receive a specified sum of money known as the death benefit in form of a lump sum or as a monthly payment or as an annuity. To avoid taxes, most people choose to receive their death benefit in a lump sum. Its biggest advantage is that it is cost-effective.
Term life insurance policies are less expensive and have lower premium expenses than other forms of life insurance policies. Permanent life insurance is a better option for those who want coverage for the rest of their lives. Term life insurance is a good option for people who want to save money on life insurance for up to 30 years.
Whole life insurance
The most common type of permanent life insurance is whole life insurance. It also gives out a death benefit, but unlike term life, most policies include a cash value, which functions as an investment-like, tax-deferred savings account. Cash value and lifelong coverage as a benefit. Endowments and estate plans can both be covered by the cash value component.
Also, because this coverage lasts your entire life, it can help support long-term dependents as disabled children. Cost and complexity are disadvantages.
Unit Linked Insurance Plan (ULIP)
These are insurance plans that provide the benefits of insurance cover as well as a market-linked investment. ULIPs are goal-based financial solutions linked to the capital market. Thus, allowing flexibility to invest in equity or debt funds, depending on the investor’s risk appetite. ULIPs help with capital appreciation over a long period of time, while providing insurance cover.
Endowment plan
An endowment policy is a type of life insurance policy designed to pay a lump sum on maturity or on death. An endowment policy can be used to build a risk-free savings corpus, while providing financial protection for family in case of an unfortunate event. This simplicity of an endowment plan has over the years made it an attractive savings plan for all.
Money back plans
They are one of the most popular life insurance plans in India. Under these plans, the policyholders receive frequent pay-outs as the death benefit, in case the policyholder survives. These packages include both insurance and investment plans.
A money-back plan is ideal for people who want a guaranteed return on their investments and are looking for regular pay outs at the same time in addition to an insurance cover for themselves for the same money they are putting in as premium. It offers regular income along with a maturity benefit just like standard life insurance policies.
Group life insurance policies
Some employers provide group life insurance as an employee benefit, which is a type of term life insurance known as yearly renewable term. Technically, it is not a sort of life insurance, understanding how it differs from privately acquired life insurance is critical.
Most people believe their employer-provided life insurance provides adequate coverage but this is rarely the case. Life insurance provided by the employer’s company at no additional expense is a fantastic benefit. However, the coverage provided by your employer may not be enough if purpose is to safeguard the family.
Major Players
Some of the major players in the life insurance sector are as follows:
Public sector life insurance companies:
- Life Insurance Corporation of India
Private sector life insurance companies:
- AVIVA Life Insurance Co. India Ltd.
- Aegon Life Insurance Co. Ltd
- Aditya Birla Sun Life Insurance Co. Ltd.
- AGEAS Federal Life Insurance Company Limited
- Bharti AXA Life Insurance Co. Ltd
- Bajaj Allianz Life Insurance Co. Ltd.
- Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
- Pramerica Life Insurance Limited
- Edelweiss Tokio Life Insurance Co. Ltd.
- Exide Life Insurance Company Limited
- Future Generali India Life Insurance Co. Ltd
- HDFC Life Insurance Co. Ltd
- ICICI Prudential Life Insurance Co. Ltd
- IndiaFirst Life Insurance Company Limited
- Kotak Mahindra Life Insurance Company Limited
- Max Life Insurance Co. Ltd
- PNB Metlife Insurance Co. Ltd.
- Sahara India Life Insurance Co. Ltd
- SBI Life Insurance Co. Ltd
- Shriram Life Insurance Co. Ltd.
- Star Union dai-ichi Life Insurance Co. Ltd
- TATA-AIA Life Insurance Co. Ltd.
- Reliance Nippon Life Insurance Company Ltd.
What is General Insurance?
General insurance is a type of insurance that provides financial protection against a wide range of risks and uncertainties that individuals, businesses, and organizations face in their everyday lives or operations, excluding life insurance. It covers assets, liabilities, and events that are not related to human life.
Types of General Insurance
Let us now discuss the different types of general insurance:
- Property insurance
- Marine insurance (Insurance for ships)
- Fire insurance
- Social security/Social insurance
- Real estate/Property insurance
- Guarantee insurance
- Home insurance
- Motor insurance
- Travel Insurance
- Health insurance
Property insurance
Property insurance protects a person’s or individual’s property against a certain risk. The risk could include theft of property or products or property damage in the event of an accident.
Marine insurance (Insurance for ships)
Marine perils include collision of a ship with a rock or other ship, enemy attacks, fire and capture by pirates, enemies, pirates, rovers, thieves, jettison, barratry, restraints and detainments, etc. These threats can lead to damage, destruction or disappearance of the ship and cargo, and non-payment of freight.
Marine insurance protects the ship, cargo and freight. Marine insurance covers marine perils or inland perils associated with the delivery of cargo (goods) from the insured’s godown and may extend up to the buyer’s (importer’s) receipt of the cargo at his godown.
Fire insurance
Fire insurance protects against the possibility of fire outbreak. Fire accidents can harm the individuals as well as the society. The losses caused by fire may be reimbursed using fire insurance due to which society suffers little loss. Fire insurance does not only protect against losses but it also covers some consequential losses such as war risk, upheaval, riots, etc.
The purpose of social insurance is to safeguard the less fortunate members of society who are not in a position to pay the premium for proper insurance. Social insurance includes pension schemes, disability benefits, unemployment benefits, sickness insurance and industrial insurance.
Real estate/Property insurance
The property of a person and that of the society is insured against loss which may occur due to fire and maritime disasters and the crop is protected against an unexpected decrease in deduction, unexpected death of business animals, machine breakdown and theft of property and products.
Guarantee insurance
The guarantee insurance protects the losses caused by the dishonesty, disappearance or when the employees are no longer honest or a third party. The party must be a contracting party. The first party suffers a loss as a result of his failure. In export insurance, for example, the insurer will compensate the loss if the importers fail to pay the amount of debt.
Home insurance
It is a specific type of property insurance. A home is a precious asset that must be protected with a comprehensive home insurance coverage. Home and household insurance protects your home and its contents. A home insurance coverage generally covers damage or loss caused by both man-made and natural events.
Motor insurance
Automobile insurance provides protection if vehicles are damaged or in cases of accidents, vandalism and theft. It is available in two varieties: third-party and comprehensive. Assume that you have taken a third-party insurance. If your vehicle is at fault in an accident, third-party insurance pays for the damages caused to others. It is also worth noting that, under the Motor Vehicles Act of 1988, third-party motor insurance is required.
On the contrary, a comprehensive insurance policy protects your motor from fire, earthquakes, theft and impact damage. In the event of third-party property damage, bodily injury or death, it also offers coverage against any third-party liability.
Travel Insurance
A travel insurance policy protects the insured when they travel worldwide and lose money due to baggage loss, trip cancellation or aircraft delays. If an insured is hospitalised while travelling, you may be provided cashless hospitalisation.
Health insurance
Health insurance is a critical risk management tool that assists the insured in dealing with medical emergencies. A health insurance policy pays for hospitalisation costs up to the policy’s limit. When we talk about health insurance, one can choose between a standalone policy and a family floater plan that covers everyone in the family.
It must be noted that general insurance also includes liability insurance and fidelity insurance. Under liability insurance, the insured is legally liable to pay for damages caused to property or an injury or death in case of individuals.
A few examples of liability insurance include automobile insurance and machine insurance, among other things. Fidelity insurance is also a type of general insurance product that is used by employers to protect themselves against business losses caused due to employee dishonesty, theft or fraud.
Some of the major players in the general insurance sector are as follows:
Public sector general insurance companies:
- National Insurance Co. Ltd.
- The New India Assurance Co. Ltd.
- The Oriental Insurance Co. Ltd.
- United India Insurance Co. Ltd.
Private sector general insurance companies:
- Acko General Insurance Limited.
- Bajaj Allianz General Insurance Co. Ltd.
- Bharti AXA General Insurance Co. Ltd.
- Cholamandalam MS General Insurance
- Edelweiss General Insurance Co. Ltd.
- Future Generali India Insurance Co. Ltd.
- Go Digit General Insurance Limited
- HDFC Ergo General Insurance Co. Ltd.
- ICICI Lombard General Insurance Co. Ltd.
- IFFCO-Tokio General Insurance Co. Ltd.
- Kotak Mahindra General Insurance Co. Ltd.
- Liberty General Insurance Ltd.
- Magma HDI General Insurance Co. Ltd.
- Navi General Insurance Ltd
- Raheja QBE General Insurance Co. Ltd.
- Reliance General Insurance Co. Ltd.
- Royal Sundaram General Insurance Co. Ltd.
- SBI General Insurance Co. Ltd.
- Shriram General Insurance Co. Ltd.
- Tata AIG General Insurance Co. Ltd.
- Universal Sompo General Insurance Co. Ltd.
