Meaning of Insurance
Insurance acts as a contract, on which is represented by a policy, under which an individual receives financial protection against uncertain life events which causes him/her uncertain financial losses, The reimbursement of these losses are borne by an insurance company. The company collects a sum from an individual which is term as insurance premium which in return assures the person of transferring his risk of uncertainty to the insurance company.
Different Types of Insurance in India:
The insurance sector in India broadly classified as:
- Life Insurance
- General Insurance
- Miscellaneous Insurance
Life insurance is defined as a contract between an insurer and a policyholder. A life insurance policy guarantees that An insurer pays a sum of money to the named beneficiaries when the insured policyholder dies, in exchange for the premium paid by him during his lifetime.
Various kinds of Life Insurance
It is a pure risk cover product. The policyholder received the benefits if he dies during the period for which one is insured. It provides insurance coverage for a specified term of years with a specified premium. The premium buys protection in the event of death only. Premiums are low here because it only covers the risk of death and there is no investment component in it.
In this, the insurance contract is designed to pay a lump sum after a specific term or on death only. Normally maturities are of ten, fifteen, or twenty years and up to a certain age limit too. Some of the policies also payout in the case of critical illness.
Money-Back Insurance Policies are a type of endowment policies that covers the life and also assures the return of the sum assured as a cash payment at regular intervals. It is a kind of savings plan with the additional advantage of life cover and regular cash inflow. The rate of return on endowment policies is quite low.
Whole Life Insurance:
It provides insurance cover for the entire life of the insured person or up to a certain age. Premium is fixed for the entire period. There are different whole life policies such as shorter premium payment periods and return of premium option. One of the primary advantages of a whole life policy is guaranteed death benefits; guaranteed cash values. The disadvantage of whole life insurance policies is premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives.
Unit Linked Insurance:
A ULIP is the combination of insurance cover as well as investment opportunities in a single policy offering. Unlike other insurance policies, the insurer gets the benefits of investments in this. An insurer just needs to pay the regular premium which has been departed by the company. Some portion of the premium is used in investment instruments and the remaining is used as insurance coverage.
It offers the coverage of medical expenses borne by the insurer, which is caused by any illness. The expenses covered by the insurance company can be wholly or part of it.
Personal Accident Insurance:
It covers the insured in case of any accidents. Apart from all the medical costs for treatment, salary loss due to injury may also be covered. The compensation depends on the nature of disability caused and the extent of disability.
It is a kind of insurance product that covers the unforeseen losses that occur while traveling, either domestically or internationally.
It is a kind of Third-party insurance, which covers the people affected by motor accidents is compulsory under law. Insurance covers the cost of the vehicle and its accessories. Insurers have their schedules of coverage and premium, depending on the age and model of the vehicle.
It protects against risks to property, such as fire & theft, and some weather damage (Natural Calamities). It includes specialized forms, such as fire & burglary insurance, flood & earthquake insurance, and home insurance.