The term insurance means an agreement by which a company or the state undertakes the responsibility to provide the guarantee of compensation for specified loss, damage, illness or specially death in return of paying specified premium, or we can say a thing providing protection against a possible eventuality.
Broadly there are two types of insurance i.e.:
- Life Insurance
- General Insurance
Life insurance and General insurance have some different types of insurances covering different aspects which are also discussed below.
As we all know, that life is an unpredictable, u never know that what is going to be the next situation in your life. One should also prepare for the unfavorable situation. So everyone should move on safe side. The most important step for securing your life is to take Life Insurance. It is an important tool to protect oneself and his family. It helps to remain economically stable in a case parent or life partner dies.
It is a deal with insurance company, as a person taking policy has to pay regular premium and in return he/ she gets a lump sum payment after a particular time period or after death, whatever comes early which is known as death benefit. As it is an important part of life, so insurance need to be given preference over the investment by every person who has dependent’s. It provides satisfaction that your family is protected after you. It also helps to get tax benefit i.e. the premium paid is allowed as deduction from the taxable income of any person, so an individual gets a benefit of premium paid from tax.
Life insurance products come with following tax benefit deduction under section 80C:
- Premium payments paid up to Rs.1,50,000 in the name of taxpayer, taxpayer’s spouse or children
- ULIP investment up to Rs.1.5 lakh.
Types of Life Insurance are:
Whole Life policy
A whole life insurance policy is life insurance policy in which the tenure of the policy is not defined i.e. the insured has to pay premiums throughout the life and upon the death of the insured the corpus is paid to the family of the insured. So the policy expires only in case of death of the policyholder. This policy provides the cover throughout life of the insured.
The term insurance premiums are less as compared to other insurance policies. The tenure of the policy is fixed at the time when the policy is taken. This provides the cover with no profit or saving. In this policy if the policyholder is not met with death there is no pay out but in case the policyholder expires in between the tenure of the policy, the fixed sum assured is given to the family of the insured.
Endowment plans has one advantage over all other policies i.e. maturity benefit. The term insurance pays out the sum assured only in case of the death but the endowment plans pays out the sum assured in both the situations i.e. either death or the maturity of the policy. The endowment policy charges higher premiums as compared to term insurance.
Money Back policy
This policy gives the periodic payments over the policy term. The portion of the sum assured is given at regular intervals. In a case the insured survives, he gets the balance sum assured but in a case the insured meets death, the beneficiary gets the entire sum assured.
Unit linked insurance plans (ULIP)
ULIP refers to unit linked insurance plans which acts a market linked instruments. The main feature of this is that it combines feature of both an investment and an insurance. It usually offers two main benefits to its users which are listed below:
- Investment options for the holders by creating link with capital market.
- Insurance cover for the holder.
Depending upon purpose of investment ULIPs can be divided into:
So, the main motive of life insurance should not be the investment whereas it should be the secured life of oneself, one’s family, dependents. One should not expect gains from any kind of returns. It is economical and fulfils the fundamental purpose of providing protection to the person. One should get life insurance without consideration of one’s income, expenses, debt and age.
Different types of insurance protect you and your close one’s in case any accident, disability, illness and death. But life insurance is one of the best way to secure life that’s why it is a fundamental necessity of life.
General insurance covers the insurance of property against fire, burglary, theft; personal insurances covering health, travel, accidents; and liability insurance covering legal liabilities. This category of insurance virtually covers all forms of insurance except the one i.e. Life insurance, as it separate category. Common forms of general insurance are: Motor, Fire, Home, Marine, Health, Accident, Travel, Liability and other many more non-life insurances. Unlike the life insurance, the tenure of general insurance is not life time. The usual time period for it is one year but some of the insurances for which the period may vary i.e. it may be longer.
Types of General insurance are:
Health insurance is a type of insurance coverage that pays for medical and surgical expenses or for any treatment expenses incurred by the insured. Health insurance either reimburse the expenses to the insured or pay directly to the care provider. This is often provided by the employer to the employee as a benefit package to retain the quality employees. The health insurance only helps in medical expenses but also the health premium paid by the payer is deductible from the income and the benefit received are also tax-free.
Home insurance is a form of property insurance which is designed to protect an individual’s home against damages. It is an insurance for the owner of the house that’s why it is also called home owner’s insurance. It protects the home against natural as well as man-made threats. It is an insurance policy that combines various personal insurance protections which includes losses occurring to one’s house, its contents, or loss of the other personal possessions of owner of the house. It also provides liability coverage for accidents that may happen at any time within the tenure of the policy.
A tour can turn into a misfortune anytime if one has to suffer from contingencies like loss of baggage, medical emergency. Travel insurance covers one against medical and other emergencies during travel.
It covers the damage or loss which occurs to the property due to the fire. It is a specific type of insurance in addition to home owner’s insurance. Fire insurance covers the cost or expense which occurs on the repair or reconstruction of the building which is damaged due to a fire. It also covers the loss or damage due to the ignition of fire, electricity, lightning, or explosion of gas or any natural disaster. Moreover, it also covers the damage to the nearby structure, personal property. But all these reimbursement is made by insurance company only in case there is proper attempt to save the property from fire.
With this insurance you can protect your family from personal accident injuries. This insurance provides benefit to you and to your family for accident, permanent disability, broken bones or burns due to an accident. It also provides benefits of the ambulance and hospital cost.
This is the insurance which is specially designed for businesses which imports or exports the goods across the international borders. Marine insurance is the need of the business. Marine insurance covers goods, freight, cargo and other loss and damage during transit by rail, road, sea or air. Marine insurance protects the goods from the time when goods leave from seller’s place up to the time the goods reach the buyer’s place. Marine insurance compensates in case of actual loss suffered.
Liability insurance is a part of general insurance system which finances the risk to insured from the risks of the liability imposed by the lawsuits and other similar claims. It protects the insured in the event insured is sued for claims that come within the coverage of the insurance policy. Liability insurance are designed to offer protection against third party insurance claims i.e. lawsuits etc.
Motor insurance protects you from the damage and liability against damage caused on-road or off-road. It covers the cost of the repair in case your vehicle incurs due to an accident. It is a need of an individual having a car or any vehicle. It offers protection to owner of vehicle against damage to the vehicle and it also pays to the third party liability.
That why the life insurance and general insurance are important for financial well-being as insurance plans helps an individual to cope up with difficult time (whether death of the person, illness, accident, natural or man-made calamities) by providing financial help through insurance companies. The main motive of every insurance is to provide financial help, that helps one being financially well.
About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.