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A Comprehensive Guide to Insurance - Life and General
- DetailsWritten by PolicyBazaar -
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Updated date : 16 March 2020
What is Insurance?
The term ‘Insurance’ refers an instrument that offers protection from financial loss of one or more types. It is primarily a risk management practice against potential risks of contingent, tentative losses.
Insurance, in simple words, is a contract or agreement between two parties - an insurer (an insurance company) and an insured (a policyholder – an individual or a group of people), wherein the insurer provides a compensation in form of a payment to the insured in the event of occurrence of a covered loss.
The loss encountered by a policyholder may or may not be financial. However, insurance companies attempt to reduce it to monetary terms and provide the insured with a pre-decided compensation whenever a loss is incurred.
Breaking down Insurance
Insurance marketplace is pretty vast; there are several different types of insurance policies available in the Indian market. Be it a business or an individual, there are insurance companies that offer adequate coverage in exchange for a certain amount of money called ‘premium’. Hearing terms like motor insurance, health insurance, life insurance, travel insurance, home insurance etc, has become commonplace now.
There are certain other insurance types as well, such as business insurance, group insurance, etc. A business insurance policy safeguards a business from particular risks that might cause one or more losses. This can be understood with some examples. An auto dealer seeks an insurance policy that safeguards his salesmen from damages or injuries that might occur during a test drive. A restaurant owner needs an insurance policy that covers any damage or injury that might occur while she works with a deep fryer. Likewise, an organization seeks group insurance to provide health coverage to its employees at the workplace.
Key Insurance Terms
While buying an insurance policy, it is prudent to understand how it works. In other words, you need to understand the basics, i.e. key terms that you come across when you read an insurance policy’s wordings. Two of such key terms are – Premium and Deductible. If you understand these terms, it’s going to help you buy a policy which will measure up to your insurance expectations.
The term ‘Premium’ of a policy simply refers to its price, which is payable either in full or in installments (monthly, quarterly, or half-yearly) to keep the policy in force. The insurance company is the premium-deciding body and takes in consideration your business or your risk profile before determining your premium. For instance, if you buy health insurance at a young age, you are considered to be less prone to pre-existing diseases or health hazards than a senior citizen who might already have one or more pre-existing diseases, such as blood sugar, chronic kidney disease, high or low blood pressure, or heart problem etc. Clearly, you pose a lesser risk to the insurance company and hence, your health insurance premium will go down.
Similarly, if you have a car with an anti-theft alarm and high-security system installed in it, then your car insurance premium will go down. This is so because your car has been made pretty secure and is at a lesser risk. Hence, the insurance company will charge you a lesser premium while issuing you a car insurance policy. You might find that different car insurance policies have a different premium. In fact, the same goes for every other insurance policy, be it bike insurance, health insurance, life insurance, or term insurance. Therefore, you must compare insurance policies before buying them.
Deductible is the second most importance component of an insurance policy as it comes into play whenever you need to make a claim. When you file a claim, you have to pay a certain amount from your own pocket, which is called the out-of-pocket expense, before the insurance company releases a payout for your losses. Based on the insurance policy type or the insurance company, deductibles can put on per-claim or per-policy basis.
Insurance policies with high deductibles are relatively cheap as policyholders are less likely to raise small claims because of high out-of-pocket expenses.
Healthy Tip: Individuals who have chronic health diseases should go for health insurance policies with lower deductibles to minimize out-of-pocket expenses. Although this will require them to pay a comparatively high premium, affordable healthcare access throughout the year will make it a no-loss deal.
Types of Insurance
There are various types of insurance that individuals need to protect themselves and their belongings (living and non-living) against one or more threats and liabilities. At PolicyBazaar, we help you come to the best decision while buying insurance, be it a Life or Non-life insurance policy, by efficiently comparing them all (in their respective category of insurance). This simple guide will help you know about various types of insurance and facilitate you in finding yourself the best and most appropriate one. Let’s get started!
Life insurance is a type of policy or contract between an insurance company, or insurer, and a policyholder, which binds the insurer to pay a pre-determined sum of money to the beneficiary as policy benefit in exchange for a premium (paid as a lump sum or regularly), typically, in the event of the death of the policyholder. Based on the policy terms, a terminal illness or critical illness can also trigger the benefit. However, self-inflicted harm (suicide) is not offered any cover.
Term insurance is a type of life insurance policy that comes with a pre-determined benefit for a limited coverage period. The coverage offered by the policy ends as soon as the policy term ends. After that, the policyholder can either let the coverage end or choose to renew it. This type of life insurance is also called Term Life Insurance. People often confuse the term 'life insurance' with 'permanent life insurance', which provides whole life coverage.
As stated in the policy documents, term life insurance promises to provide a pre-determined benefit to the beneficiary in case of demise of the policyholder during the policy term. Simply put, term life insurance only promises death benefit and offers no maturity benefit if the insured outlives the policy term. Since term life insurance offers coverage against the loss of life, it is also called Pure Life Insurance.
The premium payable for term life insurance is subject to health, sex, and age of a person; sometimes, the person (insurance-seeker) is required to undergo a medical examination before the policy is issued. The policy might also require additional information, such as family medical history, pre-existing diseases (if any), occupation, smoker or non-smoker status, etc.
Investment plans help you create a wealth to fund your future. These plans provide you with the dual benefit of insurance and investment. In other words, you not only secure your present but also your future. Here are the best investment options for you.
A child plan comes with the dual-benefit of insurance and investment. It assures the financial security of your child’s future and turns out to be beneficial during the key events of his or her life, such as higher education, marriage, etc. The best child plan builds a corpus over a pre-determined period of policy, which plays a major financial role at one or more prime events in his/her life.
The primary and most important benefit of child insurance plans is the inbuilt clause, i.e. if the parent (the policyholder) dies all of a sudden, then the financial needs of the child are taken care of by the insurer. This means that your child insurance plan has the ability to provide your child with a cover for his or her financial needs.
P.S. A lump sum of money is paid to the child in the event of the death of the parent.
Child insurance plans come with an additional benefit of ‘Waiver of Premium’, which means that if the parent dies before the maturity of the policy, the remaining premium installments are waived off. Simply put, a child plan provides the benefits in two scenarios – on the death of the parent or on maturity.
A pension plan is more like a retirement plan as it requires you to accumulate a share of your savings over a certain period of time for financing your post-job life. A pension plan is a mandate for every working individual as savings get exhausted very fast no matter how big they may seem at a point of time. As pension plans work on the system of compound interest, the amount grows manifold and can make a huge difference in future.
Based on the structure of the plan and the corresponding benefits offered, pension plans are classified into the following categories:
- Annuity Certain
- Deferred Annuity
- Immediate Annuity
- Guaranteed Period Annuity
- Life Annuity
- National Pension Scheme
- Pension Funds
- With and Without Cover Pension Plans
Unit Linked Insurance Plans
ULIPs, or Unit-Linked Insurance Plans or Unit-Linked Investment Plans, are market-linked products that blend the benefits of insurance and investment. These plans provide individuals with the option to choose their investment type – equity or debt funds.
One part of the invested amount goes towards the life cover or mortality charges, whereas the investment part is subject to the choice of the policyholder. The market-linked returns are earned only on the latter part. There is a variety of ULIPs available in the market, which are subject to the investment choice and risk appetite of the policyholder.
Money Back Policy
A Money Back Policy provides life coverage to the policyholder during the policy term while providing a certain percentage of the sum assured as a Survival Benefit at regular intervals. In case of the death of the policyholder, the entire sum assured is paid to the nominee without deducting the survival benefits.
Money back policies are suitable for individuals with low-risk appetite as these policies maintain liquidity throughout the policy term. Also, these policies provide guaranteed returns with an assured life cover.
An Endowment Policy is a type of life insurance policy which not only provides the policyholder with life coverage but also enables the insured to accumulate a corpus over the period of policy tenure. This corpus is provided to the policyholder as a lump sum if he or she outlives the policy term. The sum assured is provided to the nominee in case the policyholder dies during the aforesaid term.
The primary reason why one should invest in this policy is that the policyholders can fund their own retirement life, higher education or marriage of the children or buy their own house with the endowment.
Health Insurance provides insurance coverage for cashless treatment/expense reimbursement in the event of an illness or sickness which leads to hospitalization of the insured. The insurance provider either provides cashless treatment at a network listed hospital or offers reimbursement for medical/surgical expenses due to sickness or injury that result in hospitalization. Health insurance offers tax benefits according to section 80D of the Income Tax Act.
Types of Health Insurance Plans
- Individual Health Insurance Plan
- Family Health Plan
- Senior Citizen Health Insurance Plan
- Critical Illness Insurance
- Mediclaim Insurance
- Personal Accident Insurance
- Cancer Insurance
Inclusions of Health Insurance
The basic health insurance coverage includes the following.
- In-patient hospitalization charges
- Organ donation expenses in event of organ transplantation
- Pre-existing ailments or diseases
- Pre-hospitalization and post-hospitalization expenses
- Ambulance expenses
- Health check-up expenses
- Daycare procedures expenses
- Domiciliary hospitalization expenses
Exclusions of Health Insurance
The basic health insurance coverage excludes the following:
- No coverage/reimbursement is offered during the waiting period of first 30 days
- Coverage for critical illnesses/pre-existing ailments is offered after a waiting period of 2 -3 years
- Expenses arising due to maternity or newborn treatment
- Injuries arising due to war, nuclear activity, terrorism, or suicide attempt
- Treatment for terminal illness, AIDS etc.
- Cosmetic or plastic surgery expenses, hormones replacement expenses, and sex change surgery expenses.
Family Health Insurance
A Family Health Insurance policy is a type of health insurance which covers two or more members of a family against a single premium which is paid annually. In case one or more members of a family fall sick and require inpatient hospitalization, the policy covers expenses incurred on the treatment, including the outpatient medicinal expenses. A family health plan is recommended for every family (husband, wife, and up to 4 children). Although it strictly associated with the policy, some family health insurance plans permit the inclusion of in-laws as well.
A Family Health Insurance plan provides coverage either in terms of medical reimbursement or cashless treatment at a network hospital, subject to the policy underwriting.
Senior Citizen Health Insurance
A Senior Citizen Health Insurance policy ensures that the policyholder doesn’t have to face a financial crisis due to a medical emergency, especially in the absence of a financial backup. This policy is highly recommended to individuals who are above 60 and either have retired or are retiring soon and are thinking of living on some pension or interest income from a Savings account.
A Senior Citizen Health Insurance policy is a must because, after the age of 60, individuals are highly prone to ailments that can lead to immediate hospitalization, such as a Heart attack, Asthma attack, etc. This policy covers such medical conditions and takes care of the medical expenses arising from hospitalization.
Critical Illness Insurance
A critical illness insurance policy is a type of health insurance policy wherein the insurance company is liable to pay the entire sum assured as a lump sum to the policyholder, in case he or she is diagnosed with a dread disease subject to the policy underwriting. This insurance policy may also be structured to offer a regular payout to the policyholder while undergoing a serious surgical procedure, such as a heart bypass surgery.
A Critical Illness Insurance policy is different from a Health Insurance policy in terms of its sum assured payout. In case of health insurance policy, when an individual is hospitalized, expenses incurred for the treatment are reimbursed by the insurer. On the other hand, the insurer is liable to pay the complete sum assured to the policyholder if a critical illness is diagnosed.
Mediclaim insurance takes care of expenses incurred on hospitalization due to an ailment, accident, or a medical surgery (if any), by providing the policyholder with either cashless hospitalization or bills reimbursement post-discharge from the hospital. Therefore, a mediclaim insurance policy is recommended to every individual to safeguard their health.
There are mediclaim policies that take care of both pre and post-hospitalization expenses related to the ailment that led to the hospitalization. Although this period is insurer-specific, it usually is 30 days before hospitalization and ranges from 60 to 120 days post discharge.
Motor insurance provides insurance coverage to cars, bikes, trucks and other automobiles plying on the roads. It offers coverage against vehicle damage or loss due to natural as well as man-made perils. According to the law, it is compulsory for every vehicle owner in India to buy motor insurance for his/her vehicles; he/she will be fined otherwise.
Types of Motor Insurance Plan
- Car Insurance
- Two-Wheeler Insurance
- Third Party Insurance
A car insurance policy provides coverage to mitigate any costs incurred due to an accident. The insurance company, in exchange for an annual premium, pays for all or most of the costs arising out of accidental damage on behalf of the car owner.
A two-wheeler insurance policy provides coverage to mitigate costs arising from an accident/theft or any loss due to an accident. In exchange for an annual premium, the insurance company takes care of the costs incurred on repairing the damaged vehicle and treating the injured rider/pillion rider instead of the owner of the two-wheeler.
A third-party insurance policy for motor vehicles covers all sorts of financial and legal liabilities arising from an accident that causes accidental damage to the property of or bodily injuries to a third party. As per Motor Vehicle Act, 1988, third-party insurance is mandatory for every motor vehicle plying on the roads in India.
Inclusions of Motor Insurance Plan
The damages/losses arising due to the following perils are covered:
- Riot and strike
- Fire and burglary
- Terrorism acts
- Road mishaps
Exclusions of Motor Insurance Plan
Your motor insurance plan doesn’t provide insurance coverage in the situations mentioned below:
- If a driver is driving under the influence of drugs or intoxicants
- When a vehicle is used for illegal/criminal activities or any other purpose specified in the plan.
- Driver driving without a valid driving license
- Any losses or damages caused to the insured automobile outside the geographical boundaries of India
Travel insurance safeguards the insured from unforeseen circumstances such as flight delay/ cancellation, missed connection, trip cancellation, loss/delay of checked-in baggage, passport loss and any medical emergency when he/she is on a trip.
Types of Travel Insurance Coverage
Here are the types of travel insurance plan:
- Domestic Travel Insurance Plan
- International Travel Insurance Plan
- Student Travel Insurance Plan
- Medical Travel Insurance Plan
- Group Travel Insurance Plan
- Senior Citizen Travel Insurance Plan
- Family Travel Insurance Plan
- Multi-Trip Travel Insurance Plan
- Individual Travel Insurance Plan
- Single Trip Insurance Plan
- Corporate Travel Insurance Plan
Inclusions of Travel Insurance
The following situations are covered:
- Passport loss
- Stolen baggage
- Trip delay
- Trip cancellation
- Medical emergency
- Ambulance charges
- Emergency cash benefit.
- Emergency medical evacuation
- Loss of personal documents
Exclusions of Travel Insurance
The following situations aren’t covered:
- Passport loss when left unattended
- Missed flights or trains due to local protests or civil war
- Expenses arising due to local protests or civil unrest
- Pre-existing illnesses that lead to hospitalization
- Luggage delay that is less than 24 hours
- Damage or loss of keys
Home and Property Insurance
It provides insurance coverage to your home or property for the damages arising from natural as well as man-made catastrophes. It provides insurance coverage to the contents along with the structure of your house/property.
Inclusions in Home and Property Insurance
Home insurance offers the following coverage:
Fire and Perils Cover
Damages caused due to:
- Missile testing operation
It provides coverage to the insured’s property against damage(s) wreaked by an earthquake.
Burglary and Theft Cover
It provides insurance coverage for the contents of the house/property against burglary/ theft. The coverage is extended to silver articles, silver/gold jewelry, precious gem and stones along with the other valuables in case they are locked safely within your premise.
Exclusions of Home Insurance Plan
Insurance coverage isn’t provided for the following situations.
- Damage or loss caused due to wear and tear or depreciation.
- Loss of cash
- Damage or loss due to an invasion, war, and act of foreign country
- Damage or loss due to nuclear war
- Damage or loss arising due to over-running/ excessive pressure of electronic equipment
Personal Accident Insurance
It provides insurance coverage against accidental death or disability in case the insured person meets with an accident. Accidents, especially major ones, have economic repercussions. In case of death, personal accident insurance offers a financial cushion to the insured’s family.
Types of Personal Accident Insurance Plan
- Individual Accident Insurance plan
- Group Accident Insurance Plan
Inclusions of Personal Accident Insurance Plan
Insurance coverage is proved for the situations mentioned below:
- Accidental death benefit
- Permanent partial or total disablement
- Accidental dismemberment
- Medical expenses or hospitalization expenses
- Support for child education
- Life support benefit
- Treatment of burns, broken bones
- Ambulance expenses
- Daily cash allowance
Exclusions of Personal Accident Insurance Plan
Insurance coverage isn’t provided for the situations mentioned below:
- Natural death
- Treatment for a pre-existing injury
- Treatment for a pre-existing disability
- Childbirth or pregnancy-related expenses
- Treatment for self-inflicted injuries or suicide
- Non-allopathic treatment
- Driving under the influence of intoxicants
- Committing an illegal or criminal activity
- Being involved in war-related activities
- Treatment for a mental disorder
- Participation in military, air force, naval, adventurous sports or activities
It provides special insurance coverage and financial support to the individuals diagnosed with cancer after the free lookup period (according to the selected plan) is over. The premium paid towards cancer insurance is eligible for tax benefits according to section 80D of Income Tax Act.
Types Cancer Insurance Plans
The following plans are offered at early as well as advanced stages:
- Lung Cancer
- Ovarian Cancer
- Breast Cancer
- Stomach Cancer
- Prostate Cancer
- Hypo larynx Cancer
Inclusions of Cancer Insurance Plan
Insurance coverage is provided for the following situations:
- Treatment for multiple stages of cancer
- Lump sum is payable on diagnosis of cancer
- After a claim-free year sum assured is increased by a pre-decided percentage
- Monthly income is payable
- Insurance coverage continues post first diagnosis
- Hospitalization expenses
- Chemotherapy expenses
- Radiation expenses
- Surgery expenses
Exclusions of Cancer Insurance Plan
Insurance coverage isn’t provided for the following situations:
- Expenses for skin cancer treatment
- Any type of cancer (directly/indirectly) contributed to or caused by sexual transmissions such as HIV or AIDS
- Cancer due to any congenital condition; pre-existing illness, biological, nuclear act, or chemical contamination; coming in contact with a radioactive substance or radiation from any therapeutic or non-diagnostic source.
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