What is Insurance?
An individual’s life and property are exposed to risk. The individual might either suffer disability or death, whereas the property might get damaged. Similarly, an entity might also be exposed to the risk of suffering losses due to natural disasters, theft etc., which could lead to financial losses. Insurance enables an individual or an entity to transfer these risks to an insurance company.
The party (individual or entity) which buys an insurance policy is called the insured and the party (insurance company) which sells an insurance policy is called the insurer.
Insurance turns out to be a legal agreement between the insured and the insurer. As per the agreement, the latter promises to cover the financial losses suffered by the former in case of an unexpected event. For this, the insured pays a recurring amount, known as a premium, at regular frequencies throughout the term of the insurance cover.
Types of Insurance
There are two types of insurance:
Life insurance - A life insurance plan would cover the life-risk of the policyholder. Life insurance comprises all types of life insurance plans such as term life plans, endowment plans, ULIP plans etc.
General insurance (Non-Life) - An insurance plan that covers anything except risk to life is called general insurance. General insurance includes health insurance, car insurance, travel insurance, 2 wheeler insurance etc.
Health Insurance
The cost of an individual’s medical or surgical expenses is covered by health insurance. Such an individual would have to pay premiums at regular frequencies to the insurer.
There are two types of health insurance plans in India – Indemnity plans and Defined benefit plans
Indemnity plans are traditional health insurance plans. They cover hospitalisation expenses upto the sum assured amount. Indemnity plans include: Individual coverage, Mediclaim, Family floater plans, Coverage for senior citizens and Unit Linked Health plans
Defined benefit plans offer a lumpsum compensation to the insured individual if an illness is detected. These include - Critical Illness plan, Personal Accident plan, Hospitalisation cash benefit.
Car Insurance
There are two types of car insurance policies in India: Third Party Liability (TPL) and Comprehensive Car Insurance Policy
2 Wheeler Insurance
A two wheeler insurance policy protects the policyholder from expenses incurred due to damages to the two-wheeler and/or its riders. The damages could arise due to road accidents or theft or natural disasters. It is mandatory by law to own a 2 wheeler insurance in India.
Travel Insurance
A travel insurance policy would protect the policyholder against financial losses due to unforeseen events such as trip delay, trip cancellation, loss of important documents, loss of baggage, hospitalisation due to accidents etc.
There are travel insurance plans for domestic travel as well as those which cover international travel.
Travel insurance plans can also be categorized as per the profile of the traveller such as: Family travel insurance, Senior citizen travel insurance, Student Travel Insurance, Corporate Travel Insurance, Group Travel Insurance etc.
Life Insurance
Life insurance covers the life risk of an individual. The insured individual would have to pay a regular premium to the insurer for enjoying the insurance cover.
In case, the policyholder passes away during the term of the insurance cover, then the nominee can file a claim to receive the sum assured.
In India, there are multiple types of life insurance plans such as:
How does insurance work?
An insurance policy is a legal contract between the one who is offering insurance (insurer) and the one who is being covered (insured). The policy would have information about the terms under which either the insured or nominees would receive the insurance amount from the insurer. The insured party would have to pay a regular premium to the insurer during the term of the cover.
The premium which is paid by the insured is less as compared to the money received from the insurer. An insurer is able to take this risk of providing a high cover for a low premium as only a small percentage of those who pay the premium would end up filing an insurance claim.
Insurance can be sought by an individual or a company. However, it is upto the insurer’s discretion to provide the cover. The insurer would evaluate the risk profile of the applicant before providing a cover.
Insurance tax benefit
Premium upto Rs 1.5 lakh paid towards a life insurance policy can be claimed as a tax saving deduction under Section 80C of the Income Tax Act
Premium upto Rs 25,000 for your family and you along with additional Rs 25,000 for your parents can be claimed as tax saving deductions under Section 80D of the Income Tax Act
Reliance Securities is a distributor of Mutual Funds, Portfolio Management Services(PMS), Corporate Fixed Deposits, Bonds/NCDs, Insurance, IPOs, Structured Products and Loans.
