Types of Insurance

Risk is everywhere: When you drive your car to work, when you visit a new country, when you ride your bike to a nearby shop, when there’s a new bug going around in town.

Bottomline: You need the security of insurance.

There are two broad types of insurance:

  • Life Insurance

  • General Insurance

And you need both in life.

Why You Need Life And General Insurance?

Scenario 1Scenario 2Scenario 3Scenario 4
Your childhood friend suddenly meets with an accident. He passes away, leaving behind a wife, two kids and one elderly parent. You catch a cold. But work keeps you busy. Eventually, the cold worsens into Pneumonia. You need to be admitted in the ICU for a week. You are going to Spain for the first time. You have a stop-over at Abu Dhabi. Your first flight gets delayed. You miss the second flight and get stuck.You are driving to work like every other day. But the road has oil spill. A car spins out of control and hits yours. Your bumper and headlights get hurt.
Your friend had minimal savings, barely enough to cover two months’ expenses.It costs you Rs. 60,000 for the hospital charges. And Rs. 10,000 for the treatment.It costs Rs. 28,000 to fly to Spain. Rs. 20,000 to return to India. Plus, the loss from hotel booking cancellations.Your bumper costs Rs. 10,000 to repair. The headlights another Rs. 7,000.
A Rs. 7,500 life insurance could have ensured they had Rs 10 lakh in hand.A Rs. 3,500 health insurance could have ensured you paid 0 from your pocket.A travel insurance worth Rs. 500 could have helped pay the hospital bills.Rs. 7,500—that’s how much a car insurance costs every year which could have paid for the damages.

As you can see, there’s always a need for insurance, be it a life insurance or otherwise.

So, before you decide to get one, read one more about all the insurances available.

 Types Of Insurance

Types of Insurance
Life InsuranceGeneral Insurance
Term LifeMoney-back policyUnit-Linked Insurance PlanPension PlansMotor InsuranceHome InsuranceHealth InsuranceFire Insurance

What Is Life Insurance

Life insurance is a contract that offers financial compensation in case of death or disability. Some life insurance policies even offer financial compensation after retirement or a certain period of time. Life insurance, thus, helps you secure your family’s financial security even in your absence. You either make a lump-sum payment while purchasing a life insurance policy or make periodic payments to the insurer. These are known as premiums. In exchange, your insurer promises to pay an assured sum to your family in the event of death, disability or at a set time.

Life insurance can help you support your family even after retirement. Depending on what it covers, Life insurance can be classified into various types:

Term Insurance- It is the most basic type of insurance.
- It covers you for a specific period.
- Your family gets a lump-sum amount in the case of your death.
- If, however, you survive the term, no money will be paid to you or your family.
Whole Life Insurance- It covers you for a lifetime.
- Your family receives a certain sum of money after your death.
- They will also be entitled to a bonus that often accrues on such amount.
Endowment Policy- Like a term policy, it is also valid for a certain period.
- A lump-sum amount will be paid to your family in the event of your death.
- Unlike a term plan, you get the maturity proceeds after the term period.
Money-back Policy- A certain percentage of the sum assured will be paid to you periodically throughout the term as survival benefit.
- After the expiry of the term, you get the balance amount as maturity proceeds.
- Your family gets the entire sum assured in case of death during the policy period. This is regardless of the survival benefit payments made.
Unit-linked Insurance Plans (ULIPs)- Such products double up as investment tools.
- A part of your premium goes towards your insurance cover.
- The remaining amount is invested in Debt and Equity.
- A lump-sum amount will be paid to your family in the event of your death.
Child Plan- This ensures your child’s financial security.
- In the event of your death, your child gets a lump-sum amount.
- The insurer pays the premium amounts after your death.
- Your child will continue to get a certain sum of money at specific intervals.
Pension Plans - This helps build your retirement fund.
- You can get a regular pension amount after retirement.
- In the case of your death, your family can claim the sum assured.

Tax Benefits

  • Life insurance not only ensures the well-being of your family, it also brings tax benefits.
  • The amount you pay as premium can be deducted from your total taxable income.
  • However, this is subject to a maximum of Rs 1.5 lakh, under Section 80C of the Income Tax Act.
  • The premium amount used for tax deduction should not exceed 10% of the sum assured.

What Is General Insurance?

A general insurance is a contract that offers financial compensation on any loss other than death. It insures everything apart from life. A general insurance compensates you for financial loss due to liabilities related to your house, car, bike, health, travel, etc. The insurance company promises to pay you a sum assured to cover damages to your vehicle, medical treatments to cure health problems, losses due to theft or fire, or even financial problems during travel.

Simply put, a general insurance offers financial protection for all your assets against loss, damage, theft, and other liabilities. It is different from life insurance.

Let us help you understand better:

Situation 1Situation 2Situation 3
You plan to propose to your girlfriend on the Eiffel Tower.
You already finalised the deal with a jeweller in Paris.
But, things don’t go as planned and you meet with an accident there.
You cannot stop celebrating your new car. You hit the roads with your latest possession.
Everything goes well until a car suddenly tries to overtake you. It leaves huge dents and dislocates your left mirror.
Your daughter wants to become a pilot.
You save all your disposable income to fund her dreams.
Unfortunately, you fall severely ill.
Your treatment requires Rs. 50,000. But, still paid for that dainty piece of jewellery.Your new baby on the block needs repairs worth Rs. 30,000. Yet, you have a smile on your face.You need Rs. 2 lakh for your treatment immediately. Yet, you also easily pay your daughter’s course fees.
HOW?
Your Travel insurance made you ready for emergencies.
It paid for the expenses related to your accident. You could, thus, go ahead and surprise your partner with a diamond ring without worrying about the treatment costs.
The dent in your car didn’t cause a dent in your pocket.
Your motor insurance’ own damage cover paid for your car’s damages caused by the accident. In fact, the insurer settled the bill directly at the garage.
You didn’t face a dilemma of choosing one over the other and compromise your daughter’s future. Your health insurance took care of your treatment costs. Your savings, thus, remained unaffected by your sudden illness.

As you can see, General Insurance can be the answer to life’s various problems. But, for that, you need to select the right insurances from the myriad ones available.

What Are The Types Of General Insurance? / What All Can Be Insured?

You can get almost anything and everything insured. But there are five key types available:

  1. Health Insurance
  2. Motor Insurance
  3. Travel Insurance
  4. Home Insurance
  5. Fire Insurance

Health Insurance

This type of general insurance covers the cost of medical care. It pays for or reimburses the amount you pay towards the treatment of any injury or illness.

It usually covers:

  • Hospitalisation
  • The treatment of critical illnesses
  • Medical bills prior to or post hospitalisation
  • Day care procedures like Cataract operations

You can also opt for add-on benefits like:

  • Maternity cover: Your health insurance covers you for the costs related to childbirth. This includes pre-delivery check-ups, hospitalisation during delivery, and post-natal care.
  • Pre-existing diseases cover: Your health insurance takes care of the treatment of diseases you may have before buying the health insurance policy.
  • Accident cover: Your health insurance can pay for the medical treatment of injuries caused due to accidents and mishaps.

Your health insurance can also help you save tax. Your premium payment can reduce your taxable income.

ForTax deduction on the premium amountTotal
SelfRs. 25,000 (Rs. 30,000 if you are a senior citizen)Rs. 25,000 (or Rs. 30,000)
Parents, who are senior citizensRs. 30,000Rs. 55,000 (or Rs. 60,000)

*Senior citizen = Individual aged 60 or over

Motor Insurance

Motor insurance is for your car or bike what health insurance is for your health.

It is a general insurance cover that offers financial protection to your vehicles from loss due to accidents, damage, theft, fire or natural calamities

You can also get motor insurance for your commercial vehicles.

In India, you cannot drive or ride without motor insurance.

Let’s look at the two key types:

1. Car Insurance

It’s precious—your car. You paid lakhs of rupees to buy that beauty. Even a single scratch can be painful, forget about bigger damages.

Car insurance can reduce this pain for a few thousand rupees.

How it works:

What the insurer will pay for depends on the type of car insurance plan you purchase

2. Two-Wheeler Insurance

This is your bike’s guardian angel. It’s similar to Car insurance.

You cannot ride a bike or scooter in India without insurance.

How it works:

As with car insurance, what the insurer will pay depends on the type of insurance and what it covers.

Types Of Motor Insurance:

Third Party InsuranceComprehensive Car Insurance
Compensates for the damages caused to another individual, their vehicle or a third-party property. Covers all kinds of damages and liabilities caused to you or a third party. It includes damages caused by accidents, sabotage, theft, fire, natural calamities, etc.

You can increase your insurance protection with these Add-on covers for your car and bike insurance:

For more details about Motor Insurance, click here.

Travel Insurance

A travel insurance compensates you or pays for any financial liabilities arising out of medical and non-medical emergencies during your travel abroad or within the country.

There are two types of Travel Insurance.

Single Trip Policy Annual Multi Trip
It covers you during a trip that lasts under 180 days.It covers you for several trips you take within a year.

What all does travel insurance usually cover?

  • Loss of baggage
  • Emergency medical expenses
  • Loss of passport
  • Hijacking
  • Delayed flights
  • Accidental death

Home Insurance

Home insurance is a cover that pays or compensates you for damage to your home due to natural calamities, man-made disasters or other threats.

It covers liabilities due to fire, burglary, theft, flood, earthquakes, and sabotage. It not only offers financial protection to your home, but also takes care of the valuables inside the property.

Some of the common types of home insurance are:

Standard fire and special perils policyThis covers your home against fire outbreaks and special perils.
The dangers covered are:
- Natural calamities like lightening, flood, storm, earthquake, etc.
- Damage caused due to overflowing or bursting of water tanks, pipes, etc.
- Damage caused due to man-made activities such as riots, strikes, etc.
Home structure insuranceThis protects the structure of your home from any kinds of risks and damages.
The cover is also extended to the permanent fixtures within the house such as kitchen and bathroom fittings.
Public liability coverageThe damage caused to another person or their property inside the insured home can also be compensated.
Content Insurance This covers the content inside the insured home.
What’s commonly covered: Television, refrigerator, portable equipment, etc.

Fire Insurance

Fire insurance pays or compensates for the damages caused to your property or goods due to fire.

It covers the replacement, reconstruction or repair expenses of the insured property as well as the surrounding structures.

It also covers the damages caused to a third-party property due to fire.

In addition to these, it takes care of the expenses of those whose livelihood has been affected due to fire.

Types of fire insurance

Some of the common types are:

Valued policyThe insurer firsts value the property and then undertakes to pay compensation up to that value in the case of loss or damage.
Floating policyIt covers the damages to properties lying at different places.
Comprehensive policyThis is known as an all-in-one policy.
It has a wide coverage and includes damages due to fire, theft, burglary, etc.
Specific policyThis covers you for a specific amount which is less than the real value of the property.

How To Buy Insurance?

You can buy in 4 simple steps:

Step 1:

KNOW WHAT YOU NEED

  • Understand the covers you need based on personal requirements.
  • Get all the important details. For example, in the case of motor insurance get details such as the manufacturing date of the vehicle, engine specifications, etc. For health insurance, check whether you need insurance for self or the entire family.
  • This initial assessment will help you get an idea about the coverage that you need.

Step 2:

CHECK OPTIONS AVAILABLE

  • Compare the benefits offered.
  • Check the add-ons offered
  • Don’t forget to read the exclusions
  • What’s the sum assured?
  • Are there any extra services offered

Step 3:

PICK THE RIGHT PLAN

  • Select the plan that best suits your requirements.
  • Reach out to the company offering the plan.

Step 4:

PAY PREMIUM

  • Fill in the application and pay the premium.
  • You can do it online on the insurer’s website.
  • You can also buy from a broker or the dealership.

 What Does Insurance Not Cover?

Your policy may not cover liabilities in certain situations. These are known as exclusions.

Let’s have a look at a few of them.

LifeIf death occurs due to:
- Alcohol or drug abuse
- War or terrorism
- Suicide or self-inflicted injuries
- Gross negligence or carelessness
Car- Damage caused when the policy is not active
- Loss of personal belongings kept in the car
- Damage to a car that is not insured
- Damage caused when driving without a license
- Damage caused when driving under the influence of alcohol or drugs
- Damage due to wars, mutiny or nuclear risks
Bike- Damage due to war, mutiny or nuclear risk
- Normal wear and tear and general ageing
- Tire or tube punctures. (If, however, your two-wheeler is damaged at the same time, you will be compensated for 50% of the cost of repair or replacement
- Mechanical or Electrical breakdown
- Any loss or damage caused outside India
Health- Hospitalisation due to war or related activities
- Medical condition due to abuse of intoxicants or hallucinogenic substances
- Any medical condition existing before buying the policy during the waiting period
- Non-allopathic therapies such as acupuncture, yoga, naturotherapy, etc.
- Diagnostic charges if the reports do not confirm the existence of the covered disease
- Self-inflicted injuries
Travel- Travelling against the advice of the physician
- Baggage delay for less than 24 hours
- Psychological illness or self-inflicted injuries during your trip
- War or civil unrest in international locations
- Participation in hazardous sports like bungee jumping, parachuting, etc.
Home- Wilful destruction of the property
- Damages caused due to wear and tear
- Damages caused due to war
- Loss of money kept inside the property
- Loss to a property that has remain unoccupied for a certain period
FireLoss or damage caused to the property due to:
- Nuclear perils
- War or related activities
- Pollution or contamination
- Mechanical or electrical breakdowns

How Much Does Insurance Cost?

Your insurance costs depend on your premium amount. This premium amount depends on several factors that differ from insurance to insurance. Here’s a look:

Life Insurance

  • Your age
  • Your health (past and current)
  • Your occupation
  • The type of coverage/plan
  • Your smoking and drinking habits
  • The sum assured

Motor/Auto Insurance:

  • Make-Model of the vehicle
  • The type of coverage/plan
  • The value, age of your vehicle
  • Your claim history

Travel Insurance

  • The sum assured
  • The type of coverage/plan
  • Your age
  • Your health
  • The location of travel

Health Insurance

  • Your family health history
  • The sum assured
  • The type of coverage/plan
  • Your age and gender
  • Your health history

Home Insurance

  • The size of your home
  • The type of coverage/plan
  • The age of your home and the systems installed therein
  • The location of your home
  • The sum assured

You can also use online calculators to check the premium amount.

How To Use The Insurance Money?

  • You have to make a claim against your insurance policy.
  • Give details about the loss you suffered. This differs from insurance to insurance.
  • Submit the bills/proof of damage, loss, hospitalisation, etc.
  • The insurance company would verify your claim.
  • It will then pay the bill or reimburse you for your loss.
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