INSURANCE
What Is Insurance?
Insurance is a legal agreement between the insurance company(insurer) and you(insured). The insurer promises to reimburse the losses when a contingency happens to the insured. Contingency is a futuristic event or circumstance which cannot be predicted. It may or may not happen in one’s lifetime. In order to stand tall in this unpredicted situation, we go with insurance. Here the insured should pay a premium amount in return for the promise made by the insurer on certain conditions and for a time period which is set before taking insurance.
Note: Futuristic Events may be the death of the policyholder or damage/destruction of the property of the insured.
What actually is an Insurance Policy?
If you’re still confused about Insurance policy, the below few lines are for you. The insurer and the insured agree on a legal contract between them, which is called the insurance policy. The insurance policy has details about the conditions and circumstances under which the insurance company will reimburse the loss incurred to the insurer by paying out the insurance amount to either the insured person or the nominee. In anybody’s life, the unplanned expense and catastrophic event are hard truths. You can’t avoid them, but you can be prepared for it.
Why should one take Insurance?
To put into simple words, insurance protects you and your loved ones when a sudden misfortune happens to you. In the worst case, consider you meet with an accident. That may cost your life, Lifelong disability, Vehicle damage, House damage, and more importantly if you are the only earning member of your family that puts your family into a tough situation.
So having insurance will keep yourself and your family/your loved one’s safe and secure financially. The insured family will be in a better situation if any misfortune happens to the insured in the worst case.
Types of different insurance available in India
Generally when it comes to insurance in India we have majorly two, One is life insurance and other is general insurance. Will talk about each of them and discuss variable insurance available under life and general insurance. All the below insurance aimed to cover you, and your assets.
I. Life Insurance Policies
Life insurance policies aim to cover the sudden and unfortunate events like death of the insured or complete disability of the insured. Here the insurer promises to provide the life cover. The life cover provides security to your loved ones financially by paying the insurance lump sum amount in hard times when you are not around them during any unfortunate events. Then you also have flexibility to choose the insurance amount, insurance policy period, payout options based on what you choose while buying an insurance policy.
Whole Life Insurance Policy
Whole life insurance is a permanent life insurance policy, which means the insured get the coverage for their whole lifetime, but few insurance companies restrict the age of 100 years. You get the full benefit of whole insurance as long as premiums are paid on time. The whole life is different from other insurance policies like term insurance which are for a specific number of years.
The good thing about the whole life insurance plan is it offers a death benefit and also a saving component. Death benefit is simple when an insured passed away, the insured family gets the sum assured in the policy. The second component is the saving component, When you pay yearly premiums a portion of the premium is used for providing protection and the remaining premium amount stays invested in the company. If the profit is earned, the policyholder or insured gets the bonus on the invested amount. Remember, the whole life insurance is usually long period policies, unlike endowment plans.
Endowment Policy
Endowment insurance policies are similar to whole life insurance but the policy period or simply coverage period is very less like 10-20 years. Thus, the premiums of endowment plans are higher than even whole life insurance policies. Endowment plans are also permanent life insurance policies with both death benefit and saving components.
When the policy meets the maturity period of your endowment plan and the insured survives the policy term. The insured gets the lump sum amount that the insured had agreed while purchasing the plan. If any unfortunate events happen and the insured dies, then the life insurance endowment policy pays the complete sum assured amount to the family or beneficiary.
Term Insurance Policy
Term insurance policies are designed for a specified period of time with low premium and high life cover amount. Generally term insurance policies come up with specific insurance coverage age like 75, 80, and 85 years. If the insured dies within the age of insurance maturity person will get the benefit of insurance else nothing you don’t even get a penny literally they don’t have any maturity value.
If the insured dies within the policy time period, The nominee that is your family or your loved ones receive the sum assured amount. Usually, the premiums of the term plans are very low when compared to other life insurance. I personally prefer this plan because of low premium and the rest of the amount I invest in equity.
Unit-Linked Insurance Policy
ULIP insurance policies are the insurance which offer insurance and investment components under a single policy. The aim of ULIP is to create wealth along with the insurance. In ULIP, the premium paid by the insured is divided into two parts. Where one part is to provide for life insurance cover and the other part is put in investment products such as bonds, stocks or mutual funds.
The investment component comprises units in equities, debts or hybrid funds. The value of such funds/assets depend on the ongoing market conditions. Unlike other insurance plans here, the lock in period is only 5 years.
Here, the ULIP returns are in two ways. If the insured dies, the payment made to the nominee is Sum assured or the Fund value, whichever is higher. But if the insured is alive, the insured gets only fund value.
Children Insurance Policy
Child plans are types of insurance policies that cover insurance and investment components. Which helps you to financially secure your child’s future finance by creating funds over the period of time. Child plans help to plan children’s higher education, and marriage, even in your absence due to unfortunate futuristic events.
The sum of money received on maturity can be used to fulfill the financial requirements of your child such as education, startup, business etc. The amount will help your children in tough times.
Pension Policy
Pension policies, also known as a retirement plan, which cover two components, investment and insurance. A portion of the premiums goes towards creating the retirement corpus for your old age when you don’t have regular income. The pension plan helps you deal with financial uncertainties post-retirement.
In pension insurance policy, the total amount is paid as lump-sum or monthly payment after the policyholder retires. This very good plan for any employee who is depended on monthly income, Once you retire these fund will come in handy in old ages.
II. General Insurance Policies
General insurance policies cover non-living products which may include your car, bike, home, health, travel, fire, and man made incidents. Let’s look into different general insurance we have in India.
Health Insurance Policy
Health insurance policies designed to cover the medical expenses that occurred due to accidents, or illness to your body. The policy is a contract between you and the insurer with a promise to cover the medical expense of the insured. Health insurance policies pay the expenses that occur in hospitals for your treatment or reimburse the amount paid towards the treatment of any illness. Let’s look at different health insurance that are available in India.
Health insurance generally assists policyholders with hospitalization, treatment of illness, medical bills, ICU charges, and daycare procedures. To fight diseases, To get affordable medical treatment, and Rising costs of healthcare in India, making health insurance is a necessity element in your financial planning.
Vehicle Insurance Policy
Vehicle insurances are the insurance that cover financial assistance to your car and bike when you get involved in any accidents which may cause huge financial loss. Let’s discover all the types of vehicle insurance we have in India.
Vehicle insurance is also referred to as Auto/Motor insurance. These insurances usually cover your Car, Bike, and Commercial vehicles. When it comes to type of vehicle insurance, we have third party insurance, Comprehensive car Insurance, and pay as you drive insurance.
Home Insurance policy
As the name suggests, Home insurance policies cover insurance of your home against natural and human made events such as flood, earthquake, fire, and landslides. That means any physical damages that happen to your home will be covered in home insurance policies.
Especially nowadays we have more cyclones, landslides in some parts of the country to ensure we are safer, having a home insurance is a good idea. Remember, your home is the most prized one, and you have to protect it always by ensuring insurance to it.
Travel Insurance policy
Travel insurance policies are the policies which cover loss happened during your trip. It usually covers baggage loss, medical care(COVID-19), theft, and also financial emergency assistance for you in difficult situations while you travel.
With travel insurance right from the start of the trip to the end of your trip journey, you can have safe and hassle-free traveling.
Note: We keep things simple here.