Do you know the different types of Insurance policies?

 Given a choice in life, we’d happily live care-free and not worry about the future. If we were invulnerable to the externalities, life would be a breeze! But here we are, faced with all the practicalities and these require us to be focused and thoughtful about our collective future. Financial security is not guaranteed, good health is not guaranteed and peace of mind is not guaranteed. While we can spend our existence lamenting about that fact, we can be smarter and choose to live closer to our ideals. How? By investing in the right kind of insurance. So what is insurance? For the uninitiated, it is defined as protection – protection against uncertainty or the unknown where you are covered financially for losses sustained. The loss may be dependent on the risk involved. You can get covered from risk for a small fee comparatively. 

  

 So what kind of insurance is right for you? Let’s check out what we can look at. 

  

There are two main types of insurance:  

Life Insurance  

General Insurance.  

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Life Insurance – picture a scenario where your best friend passes away all of a sudden leaving his spouse, children and elderly parents behind. He had hardly any savings and he has not invested in an insurance policy either. So, in addition to coming to terms with his untimely death, the grief-stricken family have to deal with the day-to-day business of living. If he had invested in some type of life insurance policy, his family would have received a death benefit as a lump sum which would have eased their situation.  

As the name suggests, Life Insurance ensures protection for one’s family in the event of the untimely death of the Life Assured i.e. the policyholder. Life Insurance assumes great importance in case the Life Assured is the sole bread earner since the death benefit would enable the family to pay off debts and help them to get back on their feet after suffering a loss, both emotional and financial. 

 

So, what are the types of Life Insurance policies in India? There are two basic kinds – traditional and term policies. 

A pure term plan is one in which there is only protection based on risk and in traditional policies apart from risk protection, there is also the portion of investment which offers returns along with lesser life coverage.  

These traditional policies include.  

1. Endowment – an Endowment plan is an insurance plan which has validity for a specific period. A part of the premiums go towards the death benefit and the rest is invested by the insurance company and you stand to gain a maturity benefit as well as a bonus.  

2. Money-back plans – under this type of plan, a portion of the Sum Assured is paid periodically as a Survival Benefit. After expiry of the term of the plan, the balance is paid as a maturity benefit. In case of death, the entire Sum Assured is paid as a death benefit regardless of the survival benefit payments made.  

3. Retirement plans – these plans are also known as Pension plans; these plans are an amalgamation of insurance as well as an investment. Upon retirement, the policyholder gets a lump sum or a monthly payment towards his retirement corpus. In case the policyholder expires, the family receives the Sum Assured. 

4. ULIP plans – under this plan also, part of the Premium amount is invested in mutual fund investments and the remaining is paid towards the Death Benefit of the Life Assured. 

5. Plans for children – This plans ensure your child’s financial security. A lump sum benefit is paid to the child upon the death of the parents or the child receives a certain sum of money at regular intervals.  

                                                              

General Insurance - General Insurance includes all the types of insurance which are termed as non-life. This kind of insurance protects setbacks of all sorts which are not life-threatening. The various subtypes are as follows:  

1. Health Insurance – Health insurance provides coverage for treatment of injury or illness. It usually covers prehospitalisation medical bills, daycare procedures, hospitalisation, post hospitalisation bills, treatment of critical illnesses etc. There is also an option to go for add on benefits like maternity coverage, accident coverage, treatment of pre-existing diseases etc. This type of insurance has tax benefits also. 

2. Travel Insurance – This insurance provides security against financial liabilities arising out of medical as well as non-medical emergencies which may occur while travelling within or outside of your own country. This insurance provides coverage for lost baggage, delayed flights, medical emergencies, loss of your passport, hijacking or accidental death. 

3. Motor Insurance – this type of insurance ensures your four-wheeler/two-wheeler vehicle against theft, damage, fire or natural calamities. This can either be comprehensive insurance which covers all kinds of damage caused to your vehicle or that of a third party or third-party insurance which provides compensation to damage caused to another individual, their vehicle or property.  

4. Property Insurance – This insurance is also known as Home Insurance and this type of insurance coverage provides compensation for damage to your personal property due to theft, damage by fire, floods, earthquakes and natural calamities. This insurance is comprehensive, and coverage is provided for all valuables in the home as well.   

5. Fire Insurance – This insurance compensates for the loss or damage to your home or valuables due to fire.  

 

While choosing your insurance policy, it is extremely important to keep in mind that the policy should be chosen keeping in mind the following points:  

1. The policy that you go in for ultimately should be within your budget. It would not be wise to choose a policy where you are so overstretched paying your premiums from month to month or year to year that it becomes difficult to sustain your daily living. 

2. The policy opted for should be in line with the future goals and requirements of your family.  

3. Do not invest in unnecessary riders which may turn out to be of no benefit in the long run. Riders should only be chosen based upon specific requirement as per your circumstances. 

4. It is the job of the agent to persuade you to go in for a certain policy since it will be more to his/her advantage than yours, so do not be swayed by infinite promises and do your homework thoroughly before zeroing in on a policy which will be suitable for your and your family’s specific needs.  

 

It would also be wise to go through the fine print of the policy thoroughly before committing and be aware of specific inclusions since they might affect the claim your family may need to make and lead to a loss. Visit BimaKaro.in to get detailed information about all types of insurance.