Modules for Personal Finance
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Types of Insurance policies available in India.
How about we visit an eat street?
There are so many yummy delicacies like golgappas, bhelpuri, aloo chaat, hot dogs, sandwiches, ice-creams, golas, candies and much more. Some foods are sweet and others are savoury.
Similarly, there are many types of insurance, some come under life insurance and some under general insurance.
Insurance is a legal abiding between the insurance company and the individual buying it. It states that the insurer has to provide sum assured (financial coverage) against any uncertain events for a premium (amount paid by the individual). Now let’s deep dive in the different types of insurances.
Insurance that covers everything except death. It insures all things except life like your car, house, travel, health etc. It offers insurance against theft, damage, loss and other liabilities.
Suppose, you are an avid traveller who travels on a bike. You brought a brand new bike for your latest adventure. You take your new possession for a spin around the town but you meet with an accident and break your legs. The treatment requires Rs. 50,000.
How will you pay it?
Everybody wonders why you are still smiling and not getting worried about the cost of treatment. Should we tell them the secret?
It is because you own Health Insurance.
Health insurance covers expenses incurred due to medical care by either paying or reimbursing the amount paid towards the treatment of injury or illness. There are many types of health insurance that cover various medical care expenses.
Usual health insurance covers: hospitalization, treatment of critical illnesses, medical bills post hospitalization and daycare procedures (like cataract operations).
A wide range of benefits can also be added to the pre-existing health insurance like maternity cover (the costs related to childbirth), pre-existing diseases cover, family floater (allows an entire nuclear family to get coverage under a single plan), personal accident cover and many more.
Scenario 1 Continues…
Now you are absolutely fit and fine but your new bike isn’t. In the accident, your bike’s headlight got broken and there are many dents on it. You need Rs. 20,000 for the repairs. Here is what saved you in this situation: Motor Insurance.
What health insurance is for your health, motor insurance is for your car or bike.
It is compulsory in India to have a motor insurance if you have a vehicle.
Car Insurance: The car you bought for lakhs of rupees, can be insured in just a few thousands. You just have to pay a premium on your insurance every year and the insurance covers loss due to theft, accidents, damage, fire or even natural calamities.
Two-Wheeler Insurance: Your two wheeler can be protected using this insurance which comes in two variants -- One year or three year insurance -- You can choose any variant and the insurer pays you according to the type of insurance you have.
Commercial Vehicle Insurance: Any vehicle that is used commercially can be insured with the help of this insurance.
You and your friends decide to go on a trip. You book flight tickets worth Rs. 5000 each and you get an option to choose Rs. 249 travel insurance. All of your friends are now confused if it is necessary -- you being a traveller they come to you and hence you explain to them why they should buy travel insurance.
This insurance protects while travelling in india or abroad. It covers flight cancellations or delays, loss of baggage or passport, hijacks, personal and medical emergencies.
There are various types of travel insurance available: Domestic, International, Individual (for solo travellers), family (for family vacations), Senior Citizens (for people aged between 60 to 70 years), Student (when going for abroad studies).
There are also annual multi trip insurance available for trips you take within a year whereas a single trip policy covers you for a trip that lasts under 180 days.
Nobody has seen the future. There can be any kind of disaster that can happen may it be man made, natural or any other threats. The home insurance protects your house from such unforeseen circumstances. It immunes losses due to theft, fire, earthquakes, flood, burglary, and sabotage. It protects your home as well as the things inside it.
There are many types of home insurances:
- Tenants’ Insurance: As a tenant you buy this insurance to protect all your belongings in a rented house.
- Landlords’ insurance: As a Landlord you buy this insurance to protect from various contingencies such as loss of rent, public liability etc.
- Burglary and Theft Insurance: This insurance protects you from thefts and burglaries.
- Standard Fire and Special Perils Policy: This insurance covers you from natural and man-made calamities.
- Home Structure/Building Insurance: Protects the structure of the house against damage during any risk or damage. It also includes permanent fixtures within the house such as bathroom and kitchen fittings.
- Public liability coverage: it covers the damage caused to another person or their property
- Contents Insurance: Covers contents inside the insured home, usually, portable equipment like television, refrigerator, washing machines etc.
This insurance covers risks when fire is involved in cases such as war, turmoil, riots etc. It compensates or pays in case of damages. It usually provides a generous amount to cover expenses to reopen the places after experiencing substantial damages due to fire. It also undertakes the responsibility of those whose livelihoods have been affected.
Life insurance covers against unexpected contingencies like death or disability. There are some life insurance policies that give compensation after retirement or a certain decided time period. It keeps you and your family financially secured. You can either purchase the policy at one or pay premiums. Different life insurance policies can cover different things, these are the types:
It is the most basic form of life insurance. You pay a premium and the insurance covers your for the stipulated time frame. Incase of death your family gets the money. If you survive the time period, no money will be paid.
Whole Life Insurance
As the name suggests, it covers you for the whole lifetime. After your death, your family receives the payment. It covers an individual for 100 years. In case the insured individual lives past the maturity age, the whole life plan will become matured endowment.
This is similar to term insurance as it is also valid for a certain time period, but you get the maturity proceeds after the term period. In case of death, the family gets the payment during the term period.
Unit-Linked Insurance Plan (ULIP)
This insurance not only offers insurance benefits but also investment. A part of your premium goes towards your insurance cover and another part goes to a variety of market-linked equity and debt instruments..
In case of death, lump sum money will be paid to the family.
This is ensuring your child’s wellbeing even when you are gone. In your absence, the child gets money at certain intervals whereas the insurer pays the premiums.
This pays you regular pension, when you retire. It basically helps you in building retirement funds. In case of death, the family gets the payment.
Now you know different types of insurance available but which one is best for you? This we shall learn in the next chapter!
A Quick Recap:
- General Insurance covers everything except death. It insures all things except life like your car, house, travel, health etc. It offers insurance against theft, damage, loss and other liabilities.
- Health, Travel, Motor, Fire are all types of general insurance.
- Life insurance covers against unexpected contingencies like death or disability.
- Term Insurance, Whole Life Insurance, Endowment Policy, Unit-Linked Insurance Plan (ULIP), Child Plans, Pension Plans are all different types of life insurance.
Now, that you are well versed with what is available in the insurance market, there is a chance of getting spoiled with too much choice.
So, which insurance is best for you?
Go to our next module to know the answer!