Insurance means protection from financial loss. It is a type of risk mitigation practice which is used to prevent from any uncertain loss.

The entity that provides insurance is known as the insurer or insurance company or insurance carrier or underwriter. A person or entity who buys insurance is the insured or the policyholder.

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The policyholder makes a payment to the insurer in the form of premium in exchange for the insurer’s promise to compensate the insured in the event of the loss.

The loss may or may not be financial, but it eventually boils down to financial terms for transaction purpose.

Whenever the insured gets into an arrangement with the insurer, the former is provided with a contract, called the policy document. This document details the terms and conditions under which the insurer will compensate for the loss of the insured.

Types of Insurance

Insurance is of many categories such as Life insurance, car insurance, bike insurance, home insurance, health insurance, and many more.

 

Life insurance is an arrangement between the insurer and insured where the insurer compensates for the loss of life of the insured.

The sum assured by the insurer is paid to the nominee or the legal heirs of the insured as defined in the policy document.

This is typically used to mitigate the risk of an untimely death of a family member and is used to safeguard the interest of the family members.

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The Benefits

There are innumerable benefits of an insurance and here is why they are absolutely necessary in this day and age.

1.Risk coverage

The primary advantage of an insurance policy is risk coverage. The insurance company provides monetary compensation to the family of deceased insured to compensate against the premium paid by the insured.

This enables in covering the risk of the family.

2.Varied Plans

Insurance companies offer different plans to suit the need of the insured — higher premium results in higher benefits.

3.Health Benefits

Insurance policies cover expenses of hospitalization and treatment of critical illness.

4.Inculcates Savings Culture

Few insurance policies come with the savings plan. This enables subscribers to accumulate wealth while inculcating a savings culture for the future.

5. Additional Income

Few insurance policies provide guaranteed income. When any uncertain event happens, the insured or the nominee of the insurance policy is paid the sum assured at every frequency (typically monthly or quarterly).

6.Availing Loan

The insurance company provides you with a choice of giving credit to the insured. However, this facility is available only on selected policies.

7.Tax Benefit

Availing insurance policy enables an individual to get tax benefits under section 80C of the Income Tax Act, 1961.

Types of Insurance Policies

1.Term Insurance Plans

A term insurance policy is purchased for a fixed term (for example, 20 years, 30 years).

These policies don’t carry any cash value as they do not provide any benefit upon maturity. Given these policies do not have any maturity benefit, these policies are the cheapest when compared to other plans.

In this policy, the benefits can be availed when the event occurs.

In case, the event doesn’t happen during the term of the policy; the policy gets lapsed.

For example, in the event of uncertain death of the insured, the sum assured of the term insurance policy is paid to the nominee of the policy.

2.Endowment Policy

An endowment policy is very similar to a term insurance. One critical difference between endowment policy and term insurance is that the insured is eligible to get a lump sum payout in case he/she survives until the date of maturity.

3.Unit Linked Insurance Plan

Also known as ULIP, this plan offers the policyholder, with an option to build wealth in addition to security.

The premium paid for ULIP is thus divided into two parts where one part goes to life insurance (risk coverage), the other part is utilized for wealth creation.

The plan also offers a withdrawal option before maturity subject to terms and conditions as laid down by the insurance companies.

4.Money Back Policy

Money Back policy is similar to endowment policy. The only difference is that the policy is that it offers multiple survival benefits that are allotted over the policy term.

5.Whole Life Policy

As the name suggests, this policy doesn’t expire at the end of the policy term and is effective for the entire life of the insured. The policy also offers a survival benefit to the insured.

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Also, the insured is provided with an option to withdraw the sum insured subject to terms and conditions as may be specified by the insurer.

6.Pension plan

In this policy, the amount that is accumulated by way of the premium is invested in the different asset class.

The total premium paid along with the returns from the asset base is then distributed to the policyholder in the form of income by way of annuity or lump sum depending on the instruction of insured and terms and conditions offered by the insurer.

How to Settle the Claim?

In case, the event occurs for which the insured has availed insurance policy; the beneficiary is required to claim the sum assured.

The recipient is required to intimate the insurance company regarding the claim at the earliest. The claim intimation document should contain information such as date, place, and cause of death.

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Upon receiving the claim document, the insurance company may ask for additional information such as –

  • Death certificate
  • Insurance policy document
  • Evidence of title provided the insured has not appointed any beneficiary legally
  • Once all the documents are submitted, an insurance company is likely to testify the documents and settle the claim at the earliest possible.

Life Insurance Companies in India

There are currently, a total of 24 life insurance companies in India of which only Life Insurance Corporation of India (LIC) is the public sector insurance company.

The remaining are private companies of which many are a joint ventures between public/private sector banks and national/international insurance-financial companies.

The insurance sector allowed the entry of private players in the year 2000.

Following is the list of insurance companies in India that have been approved by the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI is a statutory body that regulates and promotes the insurance industry in India.

Company Sector Founded
Life Insurance Corporation of India Public 1956
HDFC Standard Life Insurance Co. Ltd. Private 2000
Max Life Insurance Co. Ltd. Private 2000
ICICI Prudential Life Insurance Co. Ltd. Private 2000
Kotak Mahindra Life Insurance Co. Ltd. Private 2001
Aditya Birla SunLife Insurance Co. Ltd. Private
TATA AIA Life Insurance Co. Ltd. Private
SBI Life Insurance Co. Ltd. Private 2001
Exide Life Insurance Co. Ltd. Private 2001
Bajaj Allianz Life Insurance Co. Ltd. Private 2001
PNB MetLife India Insurance Co. Ltd. Private 2001
Reliance Nippon Life Insurance Company Private
Aviva Life Insurance Company India Ltd. Private 2002
Sahara India Life Insurance Co. Ltd. Private
Shriram Life Insurance Co. Ltd. Private
Bharti AXA Life Insurance Co. Ltd. Private
Future Generali India Life Insurance Co. Ltd. Private 2007
IDBI Federal Life Insurance Co. Ltd. Private 2008
Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd. Private 2008
Aegon Life Insurance Co. Ltd. Private 2008
DHFL Pramerica Life Insurance Co. Ltd. Private
Star Union Dai-Ichi Life Insurance Co. Ltd. Private
IndiaFirst Life Insurance Co. Ltd. Private 2009
Edelweiss Tokio Life Insurance Co. Ltd. Private

Source: Wikipedia

The Points You Should Consider

  • Conduct Proper Research

Many policies are available in the market. Thus, you should conduct due diligence on pros, cons of policy and suitability to your requirement before subscribing.

  • Terms and conditions

The terms and conditions of insurance policy provide all information about a policy. You should read the fine print and understand it before purchasing.

  • Lock-in period

Insurance companies offer a lock-in time frame of typically 15 days. A policyholder can return the policy within this timeframe if he/she is not satisfied with the policy.

  • Premium Payment Option

Insurance providers offer annual, semi-annual, quarterly or monthly basis payment option. Choose a schedule that will make your premium payment convenient.

  • Don’t Hide Information 

You should provide all information honestly to the insurance company while subscribing. Hiding information or misrepresentation can cause serious nuances.

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Wrapping it Up

To conclude, remember the future is uncertain, and we don’t wish anything unfortunate to happen with our loved ones and us. Thus, it is essential that you secure yourself and your family.

This can be done by subscribing to insurance policies so that the risk can be covered and your loved ones don’t have to compromise on their lifestyle in your absence.

We believe an insurance policy is undoubtedly a small investment when compared to the peace of mind it brings to you and your family.

Buy insurance, remain secure.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww