Home / General Insurance / Insurance: Definition, How It Works ,Types & Features Insurance
Team AckoMar 1, 2023
In simple words, insurance or an insurance policy is a promise. In slightly complex terms, it is a contract. In technical terms, it is a legal document that guarantees financial assistance in challenging situations and is governed by terms and conditions and is offered by the insurer to a policyholder, in exchange for a premium. Nowadays, you can purchase online insurance in a quick and convenient way from your smartphone.
The major stakeholders in the insurance industry are the insurance companies, insurance brokers/agents, the governing bodies, and the policyholders. The concept of insurance is applied across fields. Popular forms of insurance are life insurance, vehicle insurance, and travel insurance. Some uncommon forms of insurance are singers insuring their voice, footballers their feet, and so on. This article is all about looking at insurance from different angles and giving you an overview of the industry. Dive in!
An insurance policy is a physical or a virtual document stating the insurance cover purchased by the policyholder. The policy contains crucial information such as the policyholder’s name, details of the cover, breakdown of the premium, and other such details. Every insurance policy has a start date and an end date, which is known as the coverage period. The insurance company only covers incidents that occur during this period. The coverage period can be extended by renewing the policy.
The policy document mentions the covers that have been purchased from the insurer. These covers are bound by certain terms and conditions that may or may not be mentioned in the Policy Document but are surely stated in the Policy Wordings. Thus, the cover stays applicable if the situation for which the claim is raised is in accordance with the terms and conditions of the policy.
For example, a Comprehensive Vehicle Insurance policy covers damage to the car in case of an accident. However, the terms and conditions mention that if the car’s driver was intoxicated at the time of the accident, then the insurance company is not liable to settle the claim.
Once you raise a claim, the insurance company checks if the policy is active and verifies whether the incident for which the claim is being raised is covered in the plan or not. Subsequently, the company looks into the claim application, scrutinises it, and then settles the claim as per the policy’s terms and conditions.
An insurance policy is important to comply with the law of the land and to ensure financial support in times of need. Sometimes, a policy serves both these purposes and sometimes either one of it. This is because not all policies are legal requirements but the majority of policies, in one way or the other, offer financial assistance.
An insurance policy is important from a legal perspective when the law mandates the usage of such a policy. For example, Vehicle Insurance is mandatory in India. Also, some countries insist on checking travel insurance documents before issuing a travel Visa to the applicants. Insurance is not usually mandatory in other types of insurance such as Home Insurance. Here, the focus is on financial support. Therefore, the importance of an insurance policy depends upon the type of policy.
Also, this importance is subjective. For example, consider two individuals have the same health insurance coverage. One individual is from a rich family and the other is from a poor family. Here, the importance of the health cover might be more for the poor guy as compared to the rich guy. Simply because the rich guy might have some savings to fall back on if there is no health cover. But the same might not be true for the poor person. Without Health Insurance, the poor guy will be in a health and financial crisis.
No matter which type of insurance you opt for, irrespective of it being mandatory or not, insurance is important as it offers peace of mind. Some people are able to sleep well knowing that their trusted insurance company has them covered for a rainy day. This trust, of the policyholder on the insurer, and of the insurer on the policyholder, is the foundation stone of an insurance policy.
A decade ago, people were sceptical about transacting online. The fear was regarding an unknown process and the security issues about it. In 2020, things have changed for the good. Affordable smartphones and internet data packs have changed the way people perceive online transactions. They are used to shopping online and spending time in the virtual world. As the insurance industry is a part of that virtual world, this change has also impacted the industry.
Digital-first insurers have an upper hand when it comes to serving online customers. While traditional insurers are revamping their strategies to suit the new online model, digital-first insurers have not only started with that model but managed to accelerate ahead in no time. The following table will highlight the key features and benefits of buying an insurance policy online.
|Buy anytime||Unlike a usual, physical office, a website is functional 24/7. You can buy insurance online any time of the day.|
|Buy from anywhere||You do not have to visit a mall or meet an agent in a café to buy insurance. You can do it online from anywhere, as long as you have an internet-enabled device and strong internet connectivity.|
|No middlemen intervention||Sometimes, middlemen might push you into buying a policy. With online insurance, there are no middlemen. And you are free to choose.|
|Simplified information||Online insurers offer a wealth of information on their website. You can read product pages, articles, Policy Documents, etc. to get an idea about the policy before buying it. If you are confused even after going through the information, you can get in touch with the insurer’s support team and clarify your doubts.|
|Affordable rates||Online insurance providers have a significant advantage over traditional insurers who rely on offline services. Since online insurers do not have a vast offline presence in the form of offices and employees, their operational cost is considerably lower. This translates into affordable policies.|
|Convenient option||One of the pain points of buying insurance was form-filling and excessive documentation. Online insurance manages to negate these pain points to a great extent.|
|Enhanced insurance experience||Right from the time you start searching for a policy till the time you claim it, the overall insurance experience offered by online insurers is hassle-free.|
Also, read: How long to keep car insurance records?
The insurance sector in India can be divided into two major groups: Life Insurance and Non-life or General Insurance. Each group has further divisions and several types of policies to offer. In some instances, buying a type of policy is mandatory by law and for others, it is a matter of choice. For example, Vehicle Insurance is a legal requirement, but Home Insurance is not. Read ahead to know the basics about the two major types of insurance policies in India.
In simple words, Life Insurance is a type of insurance where you pay a premium to the insurer to insure your life. This means, upon your death, the insurer will pay a sum of money to your nominee as per the applicable terms and conditions of the policy. This policy is beneficial for those who are the primary earning members of their family and those who want to ensure basic financial stability for the family after their death.
This is a wider group of policies that covers several insurance categories apart from Life Insurance. Non-life or General Insurance concerns itself with insurance policies for vehicles, property, travel, health, etc.
A Life Insurance policy is a contract where the insurance company pays a sum of money to the policyholder’s family after the policyholder’s death or after the expiry of a certain period. The policyholder has to pay a premium for the policy and in return, the insurer promises to pay the sum insured/assured as per the policy’s coverage.
The benefits of a Life Insurance Policy are as follows:
Tax deductions as per the Income Tax Act
Financial assistance for dependant family members
Can work as a retirement plan
Types of Life Insurance Plans:
Here’s a list of different types of Life Insurance plans. They can be termed differently by different insurers.
Unit-linked Insurance plans
When you purchase non-life insurance, you receive a policy document in exchange for paying a premium. This document is your General Insurance policy. It can be related to health, car, or any other type of General Insurance.
The scope of Non-life insurance is wider than Life Insurance with regard to the types of policies in the market. As the Non-life Insurance sector expands, new types of policies keep getting added to the portfolio. For example, mobile insurance is a relatively new category. The latest example of such a policy is the COVID-19 health insurance cover. The following sections are all about different types of General Insurance plans.
Health insurance sounds similar to Life Insurance but it should not be confused with it. This type of cover is related to hospitalization and specific illnesses. It does not have a money-back clause like in Life Insurance.
Motor insurance is a must-have policy in India if you own a vehicle. You are required to insure your vehicle with at least a Third-party Liability policy. This is a basic type of motor vehicle plan. The other type, a Comprehensive Plan, offers enhanced coverage.
This is a policy where you pay the insurance premium to cover your property and its belongings. The property can be your home, place of work, etc.
An insurance policy is basically a cover against uncertainties. And as you must have experienced, travelling involves a lot of uncertainties. You can miss a flight, lose your baggage, or worse—lose your passport in a foreign land! Travel insurance covers these, and several other, unfortunate travel incidents in exchange for a premium.
Nowadays, gadgets such as mobile phones and laptops are super expensive. They are no less than any other valuable asset. For example, a high-end mobile phone can be as expensive as a two-wheeler. Thus, there is a need to insure them against accidental damage.
Also, read: Different Types of Insurance
This section will place the spotlight on the fundamental differences between Life Insurance and Non-life or General Insurance categories.
|Characteristic||Life Insurance||General Insurance|
|Relevance||Related to the ‘life’ of the policyholder.||Related to the health or assets of the policyholder.|
|Form||Can be viewed as a form of investment as well as insurance depending upon the chosen plan.||Difficult to be viewed as a form of investment from a Return-on-Investment (ROI) perspective but can be perceived as a financial safety measure.|
|Duration||Life Insurance policies are usually long-term in nature.||General Insurance policies are comparatively short-term in nature.|
|Premium Payment||The premium can be paid in a staggard manner.||In most cases, the premium needs to be paid on a lump-sum basis.|
|Scope||The scope of Life Insurance is limited in terms of the verticals covered.||The scope of General Insurance is wider than Life Insurance in terms of the verticals covered as it includes insurance for the vehicle, health, travel, etc.|
|Primary Risk Coverage||The primary risk covered here is the ‘life’ of the policyholder.||The primary risk covered depends upon the type of insurance. For example, two-wheeler insurance, home insurance, etc.|
As mentioned above, the two types of Motor Insurance Policies are Third-party Liability Plan and a Comprehensive Cover. Read ahead for a basic understanding of these two types of vehicle insurance policies.
There are three parties in a motor insurance cover. The policyholder is the First, the policyholder is the Second, and others are the Third. Here, the others can mean a pedestrian who might be injured or whose property might be damaged due to the insured vehicle. The Liability Plan covers such third-party liability car insurance.
A Comprehensive Plan goes a step further than the basic plan. It not only covers liabilities but also ensures coverage for the insured vehicle. Plus, it allows you to strengthen the policy with additional covers known as add-ons.
Also, read: Subrogation in Insurance
Insurance policies are usually generic. This way, they can cater to the insurance requirements of a larger audience. However, there is scope for customization. Those who want specific or enhanced coverage have the option to pick add-ons or riders. These add-ons come at a price but offer either extra coverage or better service.
Different insurers might offer these add-ons by different names. Thus, it is crucial to check their features before purchasing the add-ons. Also, go for only those add-ons that add value to your policy and not go for them just because you have the option to do so. Purchasing add-ons without giving much thought can lead to unnecessary expenses with regard to an insurance cover. This will be counterproductive as insurance is meant to reduce financial expenses, not increase it.
Consider the following questions before purchasing insurance add-ons:
Are they going to be beneficial over a period of time?
What are you missing out by not opting for the add-ons?
How many add-ons do you need considering the policy’s existing coverage?
Do the selected add-ons help to ensure adequate coverage?
How much are you willing to spend on your insurance requirements?
Here’s a section on popular add-ons as per the type of insurance.
|Life Insurance||Vehicle Insurance||Health Insurance||Travel Insurance|
|Accidental Benefit||Engine Protection||Critical Illness||Personal Accident|
|Waiver of Premium||Zero Depreciation||Personal Accident||Sports Adventure Cover|
|Income Benefit on Accidental Disability||Roadside Assistance||Hospital Cash||Vehicle Insurance|
|Critical Illness||Invoice Protection||Maternity Cover||Enhanced Medical Cover|
|Guaranteed Insurability Options||No Claim Bonus Protection||Room Rent Waiver||Cab Cover|
Inclusions are situations that are covered under the insurance policy. It is difficult to state a generic list of inclusions of an insurance policy as they will vary from one insurance category to another. In fact, they will also vary from one policy to another in the same category. Therefore, it is imperative for you to read these inclusions before buying any kind of insurance.
A brief idea of the policy’s inclusions will be shared on the product page in case of online insurance and in the brochure in case of offline insurance. A detailed explanation will be provided in the Policy Wordings of the respective insurance plan. If a situation or an incident is covered under the policy’s inclusions and it does not violate the terms and conditions of the policy, then your insurance claim shall be settled.
Just as inclusions are all about situations that are covered by an insurance plan, exclusions are situations that are not covered by a plan. They are also policy-specific; however, there are certain exclusions that can be applied across policies. Here’s a list of such generic exclusions.
Claims raised after the expiry of the policy.
Usage of intoxicants.
You must be aware of the exclusions of your policy. Before raising a claim, you must verify that the reason for which you are raising a claim does not fall under the list of exclusions. If it does, the claim shall be rejected.
Whether you are purchasing an insurance policy for the first time or going for insurance policy renewal, there are certain factors that you must keep in mind to make an informed decision. Here’s a list of such factors.
Compare the policy’s coverage, premium, and features with other available options.
Do not overlook the services provided by the insurer and the company’s brand image.
Check the insurer’s Claim Settlement Ratio.
Make sure to go through the insurer’s social media handles and check for reviews.
Have a word with close friends and trusted colleagues if they have heard about the insurance company or purchased a plan from them.
Read and understand the fine print of the policy.
Check out digital-first insurers as they have a strong tech-enabled infrastructure that results in a hiccup-free insurance experience from start to end.
Although the basic online policy renewal process is similar across insurers, there can be subtle differences in the methods and the modes. For example, some insurers want the policyholders to renew their policy via the website, while some encourage the policyholders to do so via their mobile app or by calling them up. Irrespective of the method and the mode you choose for insurance policy renewal online, you are likely to follow the below-mentioned process.
Step 1: Contact the insurer (Example: acko.com)
Step 2: Verify details (as applicable)
Step 3: Change existing coverage (if needed)
Step 4: Make the online payment
Step 5: Receive the policy
It is important to opt for insurance renewal if you want to continue benefiting from the insurance cover. Without renewing your policy, you will not have a cover to fall back on in case of an emergency. Also, in cases where a cover is mandatory, such as vehicle insurance, you can face legal issues for not renewing a policy.
Not renewing a policy continuously or renewing it after a considerable gap can lead to a hike in the payable premium. Also, you might lose out on certain advantages such as the accumulated No Claim Bonus. Therefore, it is in your interest to renew an insurance policy before it crosses the expiry date.
Insurance companies often send reminders a month before the policy’s expiry date. It is a good idea to renew the policy as soon as you receive the reminder so that you do not face issues related to policy expiry. Alternatively, you can set a reminder on your mobile phone or make a note of the date when you want to renew the plan, and then take action on that day.
You might be familiar with mobile number portability. It is a feature where you can move to a different mobile operator if you do not like the services offered by the existing provider or you find a better deal elsewhere. The same logic can be applied in some insurance categories as well. You can choose a different insurance provider or a different cover from the same insurance provider while renewing your insurance policy.
Insurance is usually for an asset. And an asset has a value. Insurers charge premiums after contemplating the value of an asset. In some cases, the premium is decided by the apex insurance body and in some cases, it is decided by the insurance companies.
For example, when it comes to Third-party Liability Vehicle insurance, the premium is stated by the Insurance Regulatory and Development Authority of India (IRDAI). Here, the premium is calculated on the basis of the vehicle’s engine capacity. For comprehensive plans, the insurers are not restricted by IRDAI’s price norms, apart from the third-party coverage cost.
Continuing the example of a vehicle insurance policy; if you are interested to know the premium for a car insurance policy, you can use a car insurance calculator. Such an insurance calculator can be found on the insurer’s website. You simply have to enter basic details and it will show you the approximate cost of insuring your vehicle.
Not just that, you can go ahead and buy the policy within minutes if you are comfortable with the pricing. You can mix-and-match certain policy elements and view the prices for a different combination of covers. For example, you can select two add-ons and check the price and then remove one and calculate the overall cost again.
Also, read: Health Insurance Premium Calculator
The online claim insurance process is transparent. You can do so by contacting the insurance company via call, email, mobile application or by visiting their website. Before contacting, you can verify if the reason for which you are reaching out to the insurer is covered in your policy or not. This can be done by having a look at your Policy Document or Policy Wordings. Once you have confirmed that the event is covered by your policy, contact the insurer, share the details and file a claim accordingly.
The fundamentals of the claim process usually remain the same no matter the type of the insurance category or the cover. For Life Insurance, the claim is raised in case of the death of the policyholder or the maturity date of the policy.
There are two types of claim processes in Non-life insurance: Cashless and Reimbursement. In the Cashless method, the insurer and the garage/hospital/or similar body settle the claim between themselves. In Reimbursement claim, you have to pay the bill first and then contact the insurance company, submit relevant documents, and get the bill reimbursed.
Here’s a basic insurance claim process in case of a General Insurance Policy:
Step 1: Contact the insurer to raise a claim.
Step 2: Share basic details for verification.
Step 3: Mention the cause of injury/damage.
Step 4: Cooperate with the supervising officer or insurance executive.
Step 5: Submit documents as applicable.
Step 6: Settle the claim.
Here’s a list of some important documents that might be required to raise a claim.
Supporting documents as per the case such as the First Information Report (FIR).
Bills and receipts as applicable.
Acko is a new-age general insurance company that makes insurance simple, accessible, and affordable. It falls under the category of Non-life Insurance. Acko’s IRDAI Registration Number is 157 and the CIN is U66000MH2016PLC287385.
Here are some reasons why you should choose Acko for your general insurance plans:
Licensed by IRDAI
4.5 crore users
Incredibly low premiums
Purchasing or renewing a general insurance policy with Acko is extremely easy. You simply have to visit the website, make your selection, and follow the steps. Here’s an overview of the process.
Step 1: Visit www.acko.com
Step 2: Select the type of policy you want
Step 3: Share details
Step 4: Select plan
Step 5: Make the payment
Step 6: Receive the policy
Note that the above-mentioned process is a generic one. The actual process can vary. For further assistance, call the toll-free number: 1800 266 2256
Also, read: Difference Between Life Insurance and Health Insurance
Here’s a section on commonly asked questions and their answers concerning online insurance in India.
Yes, you can choose multiple policies and hold a life insurance policy and a general insurance policy such as a health insurance policy.
No, life insurance policies and health insurance policies are two separate categories of insurance policies.
The basic idea behind buying insurance is to stay financially secure in case of a mishap.
The need for an insurance policy is two-fold: to ensure a financial safety net in case of unforeseen circumstances and to comply with the law of the land as applicable.
This is a subjective question. There is no supreme policy. Some might find a life insurance policy to be assuring while some might be at peace with a health insurance plan. Whichever policy you choose, ensure to make an informed decision.
Yes, you can save tax by purchasing a life insurance policy or a health insurance policy as per the applicable sections of the Income Tax Act.
Yes, you are free to choose different insurance companies for different insurance needs. You can choose to purchase a health insurance policy from one insurer and a travel plan from another. Just make sure they are certified by the IRDAI to sell policies in India.
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