Everything about Insurance

The modern Insurance concept has a history long back in the seventeenth century. It was started by European merchants to hedge against the risk of loss. Insurance is basically about providing a protection against financial loss. There are mainly two parties involved in insurance;

  1. Insurer- The insurer or the insurance company is the one that provides this facility of protection against the risk.
  2. Insured- The person who seeks protection against the loss is the insured.
Other terminologies which are used in the insurance sector are;

Coverage or sum assured – There is always a specified amount up to only which the financial loss will be compensated and can not go beyond that. It is what we call as insurance coverage or sum assured.

Policy– Policy is the contract on which both the insurer and insured agree upon. The insured offers all the services along with terms and conditions to the insurer in that contract and if the later agrees he/she can sign on the same to provide his/her approval.

Premium– A fixed sum of money which the insured pays to the insurer/insurance company in the return of risk coverage.

Loss– A damage that occurs due to the occurrence of a mishappening.

Risk– Talking precisely about the insurance sector the uncertainty about the happening of the loss.

Traditionally, in the earlier times, the working system of the insurance company was quite plain. Suppose, an insurance company takes money in the form of premium from 100 people. Out of that, if 20 people suffer a loss, the money collected from all the 100 was utilized to pay the coverage amount to those 20. All hundred of them suffer a loss at the same time is a rarest of the rare scenario. The companies used to manage their daily management from that money.

That style could not survive for long as it had certain drawbacks and moreover, there was a lack of productiveness. Therefore, the insurance companies started investing the money of the insured in government bonds, corporate bonds, equities, and many other options. With this, the companies can easily do the management along with providing more amount as risk coverage.

Types of Insurance

In a broader sense, the insurance is of two types.

  1. Life Insurance
  2. General Insurance

Life Insurance

Living for our own people is what keeps one driving. The various up-downs and stresses of life get subsided if we have a purpose to live for. When you have people who count on you. But apart from that, this is also a fact that life is uncertain. There is always an anxiety in the back of the mind which makes one wonder what will happen if something amiss happens to oneself. There is no compensation for a human life but things can be made a little better with life insurance. An insurance against the loss of one’s life helps one to get rid of that insecurity which occurs to the person who is the bread-earner of a family.

In simple words, life insurance provides a risk coverage against the loss of the life of the insured. The coverage amount is given to the nominee as specified by the insured which availing the insurance service.

To encourage the habit of taking a life insurance the government of India introduced an exemption of insurance premium amount from the taxable income under the section 80C of Income Tax Act.

Types of life insurance in India

Life insurance has many sub-categories each one which has a distinct feature. In this way, the insurance company can serve all types of people. Those categories are;

Term plan

The cheapest insurance in terms of premium and also the one with high financial coverage. The term plans are easily customized as per the client to make it affordable for everyone. It is one such type of insurance which every earning individual must take.

Key features

  • Small-sized premium
  • High coverage
  • Allows only post-death claim. That means the risk coverage happens only after the death of the insured.

Benefit

  • Compensate for the loss of bread-earner of the family.
  • The claimant can repay loans with the coverage amount

Unit Linked Insurance Plan (ULIP)

It is an insurance-cum-investment plan. The amount given as a premium in such plan is partly invested in various market instruments depending upon the choice of the insured. The policy-holder who wishes to take the benefit of market fluctuation but also concerned about the capital loss can choose hybrid options to invest in. Similarly, for a highly conservative policy-holder, the best option is investing government bonds. Some insureds are aggressive as well when it comes to investment. For them, the equity investment is the best. One more thing which the people who seek this insurance plan must know is that, as it is partly an investment it, therefore, includes certain charges.

Key features

  • It is a combination of insurance and investment
  • The policy-holder can choose the investment instrument.
  • The insured/investor can switch between investment options but only for a limited number of times.
  • The policy-holder can redeem the amount after a certain period of time.
  • An element of risk is present.

Benefits

  • The insured can enjoy the maturity benefit.
  • Life coverage during the policy tenure. That means if the policy-holder dies during the policy tenure his/her nominee can claim the coverage amount.

Endowment plan or traditional life insurance plan

Endowment plan takes the best of both the abovementioned plans and adds some more good features into it. Unlike term plan, the insured can avail the benefit of maturity if he/she outlives the policy tenure. And also unlike ULIP plan, this plan is not risky at all. It invests some part of the premium in 100% safe instruments. This plan is beneficial for situations such as the insured has reached an old age and in the need of financial support. It is like a long-term fixed deposit along with death cover.

Key features

  • Partial investment in 100% safe plans.
  • Combination of death cover and long-term savings.

Benefits

  • The insured can enjoy the maturity amount after the completion of the policy term.
  • Periodic bonuses are added to the invested amount which gets summed up with maturity amount. In case, the insured dies during the policy-term the nominee will receive it along with the coverage amount.

Retirement Plan

As the name suggests itself, the retirement plan is one such life insurance plan option which allows you to save a good amount for your retirement. The maturity of this plan is up to when the insured attains the age of 60 years. After attaining that age the policy-holder can receive the maturity amount as a single payout or in the form of annual installment, depending on the insurance company. During the policy tenure, the insured also enjoys the peace death coverage.

Key feature

  • A 2-in-1 plan which gives retirement planning plus insurance benefits.
  • Additional benefits on maturity if the insured survives throughout the policy-term.

Benefit

  • One need not have to do retirement savings and insurance separately.
  • Lets one live the retirement life with dignity.

Child plan

A life insurance plan which is done specifically to keep the future of the children secured. The maturity of such plans is up to when the child of the insured attains the age of 18 years. In an unfortunate situation like when the parent of a child dies then the child must have some financial support. And for such a case, this plan is useful. However, the parent can also choose this plan as a way of saving or keeping aside some money for their child for his/her higher education marriage etc.

Key features

  • The plan lets you have the risk cover along with saving money for the future of your children.

Benefit

  • Empowers your child during an unfortunate circumstance.
  • Kind of an investment for your children’s future.
  • Some companies provide bonus along with maturity amount.

Money Back plan

Money back plan is a type of life insurance plan which provides survival benefits to the policy-holder in the form of periodic returns. The returns are actually the part payment of the sum assured. It helps the policy-holder to meet certain expenses in the different stages of life.

Key features

  • It is a sort of short to medium term insurance.
  • The entire sum assured is recovered within a short span of time.

Benefits

  • The insured can also receive bonuses from time-to-time.
  • Helps meeting short to medium term goals.

Whole life insurance

Whole life insurance is just like the term plan but with one significant difference. Term plan has a pre-decided policy tenure. But with the whole life insurance plan, just like its name, the policy tenure is throughout the life of the insured (or for 100 years in certain insurance companies).

Key features

  • The policy continues throughout the life of the policy-holder.
  • The maturity amount is solely received by the nominee in the form of death cover.

Benefit

  • No insecurity of not receiving the benefit.
  • Financial security to family members.

General Insurance

As we have fully covered the life insurance part, now we can move towards general insurance. The entire concept of insurance was introduced long back was introduced for general insurance. General insurance provides protection against the financial damages that can occur to our valuable assets. The damages are of different natures. Their occurrence of any of them is uncertain but could cost a huge sum to the possessor or owner of that asset if at all it occurs. One can be prepared for such a situation by opting for general insurance.

A small yearly payment of premium keeps us from spending a huge amount. It is not necessary that we can arrange the amount when the damage occurs. Therefore, it is important to be financially prepared.

Types of General Insurance

Property Insurance

This type of insurance provides protection against the different types of damages that can occur to a property. Damages such as burglary, natural calamity or man-made calamities such as short-circuit, fire or any other physical damage. This insurance is for both residential as well as commercial property. Apart from that, the insurance is not only for the brick and mortar structure but also for some of the valuable things inside the property. One must keep in mind that all the general insurance companies may not cover all types of damages. Therefore, one must check properly before availing the policy.

Motor Insurance

As the government has made it mandatory, every car or bike which is running on the Indian roads has an insurance policy. However, it is important as well for every individual who owns a vehicle because it offers a lot of benefits. It provides coverage against the risk of damage to the vehicle due to accident or any other reason and also against theft. The repair expenditure of vehicles can severely hamper one’s budget. And vehicle is not just the luxury, rather they need. Therefore, spending a small amount in the form of insurance premium can save you from many unwanted spendings.

Health Insurance

It is the next most important part of financial planning for an individual. after the life insurance. Health issues are uncertain just like the occurrence of any other loss. Often the medical bills take a major part of or the entire part of one’s savings. Therefore, one must stay prepared for such situations with health insurance policy. There are multiple types of facilities under health insurance or medical insurance. One can choose from the one that suits one best. There are services like cashless service where the entire expenditure of the hospital is taken care of by the insurance company. Apart from that, there are policies for special diseases like cancer.

The importance of health insurance can also be understood from the fact that even the government encourages the people to go for it. Under sectio 80D of Income Tax Act, one can take a tax exemption equal to the premium paid in a year.

Travel Insurance

Traveling is a basic necessity for the soul of an individual. It enriches one’s inner self and contributes in the overall development as a human. However, sometimes certain unfortunate things happen while traveling such as accident, luggage loss or theft, and physical injury. To add more peace to one’s traveling experience, there are companies that offer travel insurance service to its clients. The premium amount is low and the coverage amount is good enough.

Fire Insurance

As it is clear from the name, fire insurance provides coverage against the loss caused by fire. It is the best service specifically for factory owners or commercial building owners. One can save oneself from a huge loss with the help of this insurance plan. However, one can take the same for residential property as well. Fire accidents usually cause by the leakage of the inflammable substance such as LPG, short-circuit, faulty wiring or due to any other reason, this type of insurance covers all type of fire damages.

Crop Insurance

We all know that Indian agriculture is a highly monsoon dependent one. The excess or lack of which often causes severe damage to the crops. The majority of the Indian farmers still rely on primitive methods and that is why any sort of fluctuation in wether ruins tons of crops in India every year. Not only the consumable food is spoiled, even the chances of making some earning for the farmers is also lost. To mitigate such a situation for our farmers, many public sector banks offer this insurance with an affordable premium amount for the farmers.

Government sponsored insurance plans

Taking the moral responsibility of making the insurance services accessible and affordable for the mass, government has also sponsored various abovementioned insurance plans under different titles. Everyone who has a bank account can avail those insurance plans, irrespective of income. They are;

  1. Pradhan Mantri Jeevan Jyoti Yojna (PMJJY)- It is a term plan for the age group of 18 to 50 years. it provides a death cover of Rs. 2 lakh with an annual premium of just Rs. 330/-.
  2. Pradhan Mantri Suraksha Bima Yojna(PMSBY)– With only an annual premium of Rs. 12 anyone between the age group 18 and 70, can get an insurance against accidental death or permanent disability. The coverage is up to Rs. 2 lakh.
  3. Varishtha Pension Bima Yojna(VPBY)– Retirement security plan for every individual to secure a financial security after attaining the age of 60 years.
  4. Pradhan Mantri Fasal Bima Yojna(PMFBY)- A government sponsored affordable crop insurance plan for all the farmers living across India.

Insurance Regulatory and Development Authority of India(IRDAI)

IRDAI is a statutory governing body formed after the Insurance regulatory and development authority Act, 1999. Its role is to regularize and monitor insurance companies in India., whether it is a life insurance company or general insurance company. Apart from that, it also promotes insurance among the Indian mass.

The main objectives of IRDAI are;

  • Protecting the interest of Policy-holder.
  • Supervising all the key elements of the insurance industry.
  • Establishing a code of conduct for the companies.
  • Monitoring the investments of insurance companies
  • Promoting the professional ethics in insurance industry
  • Taking steps to promote insurance habits among the people.