The life and property of an individual are surrounded by 

the risk of death,

disability or destruction. These risks may result in financial losses. Insurance is a
prudent way to transfer such risks to an insurance company. In this article we cover
the following topics:

1. What is Insurance?

2. How does insurance work?

3. What are the types of insurance available?

o Life insurance

o Health insurance

o Car Insurance

o Education Insurance

o Home Insurance

4. What are the tax benefits on insurance?

5. Conclusion

1. What is Insurance?

Insurance is a legal agreement between two parties i.e. the insurance company
(insurer) and the individual (insured). In this, the insurance company promises to
make good the losses of the insured on happening of the insured contingency.

The contingency is the event which causes a loss. It can be the death of the
policyholder or damage/destruction of the property. It’s called a contingency
because there’s an uncertainty regarding happening of the event. The insured pays
a premium in return for the promise made by the insurer.

 
2. How does insurance work?

The insurer and the insured get a legal contract for the insurance, which is called
the insurance policy. The insurance policy has details about the conditions and
circumstances under which the insurance company will pay out the insurance
amount to either the insured person or the nominees.

Insurance is a way of protecting yourself and your family from a financial loss.
Generally, the premium for a big insurance cover is much lesser in terms of money
paid. The insurance company takes this risk of providing a high cover for a small
premium because very few insured people actually end up claiming the insurance.
This is why you get insurance for a big amount at a low price.

Any individual or company can seek insurance from an insurance company, but the
decision to provide insurance is at the discretion of the insurance company. The
insurance company will evaluate the claim application to make a decision.
Generally, insurance companies refuse to provide insurance to high-risk applicants.

3. What are the types of insurance available in India?

Insurance in India can be broadly divided into three categories:

Life insurance

As the name suggests, life insurance is insurance on your life. You buy life
insurance to make sure your dependents are financially secured in the event of your
untimely demise. Life insurance is particularly important if you are the sole
breadwinner for your family or if your family is heavily reliant on your income.
Under life insurance, the policyholder’s family is financially compensated in case
the policyholder expires during the term of the policy.

Health insurance

Health insurance is bought to cover medical costs for expensive treatments.

Different types of health insurance policies cover an array of diseases and ailments.
You can buy a generic health insurance policy as well as policies for specific
diseases. The premium paid towards a health insurance policy usually covers
treatment, hospitalization and medication costs.

Car insurance

In today’s world, a car insurance is an important policy for every car owner. This
insurance protects you against any untoward incident like accidents. Some policies
also compensate for damages to your car during natural calamities like floods or
earthquakes. It also covers third-party liability where you have to pay damages to
other vehicle owners.

Education Insurance

The child education insurance is akin to a life insurance policy which has been
specially designed as a saving tool. An education insurance can be a great way to
provide a lump sum amount of money when your child reaches the age for higher
education and gains entry into college (18 years and above). This fund can then be
used to pay for your child’s higher education expenses. Under this insurance, the
child is the life assured or the recipient of the funds, while the parent/legal
guardian is the owner of the policy.

You can estimate the amount of money that will go into funding your children’s
higher education using Education Planning Calculator.

Home insurance

We all dreaming of owning our own homes. Home insurance can help
with covering loss or damage caused to your home due to accidents like fire
and other natural calamities or perils. Home insurance covers other instances like
lightning, earthquakes etc.

 
4. What are the tax benefits on insurance?

Apart from the safety and security benefits of buying insurance, there are also the
income tax benefits that you can avail.

 Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving

deduction under Section 80C

 Medical insurance premium of up to ₹25,000 for yourself and your family

and ₹25,000 for your parents can be claimed as a tax-saving deduction
under Section 80D

These claims have to be made at the time of e-filing income tax returns.

Conclusion

Be it life insurance, health insurance or general insurance, you can buy an

insurance policy offline as well as online. Just like there are insurance agents who
will help you buy a policy, there are websites as well that you can buy a policy
from. Ensure that you have done your research before choosing and investing in an
insurance policy.

 
Life Insurance is an arrangement between the Insurance company/Government
which guarantees of compensation for loss of life in return for payment of a
specified premium. In Life Insurance, the beneficiary whose name has been
mentioned in the contract receives the specified sum, from the insurer in case of
happening of the event i.e. Loss of Life. In this article we’ll see:

 Benefits of Life Insurance

 Types of Life Insurance Policies
 Claim Settlement Process
 Life Insurance Companies in India
 Principles of Life Insurance
 Points to Consider

1. Benefits of Life Insurance

1. Risk Coverage: Insurance provides risk coverage to the insured family in form
of monetary compensation in lieu of premium paid.
2. Difference plans for different uses: Insurance companies offer a different type
of plan to the insured depending on his need for insurance. More benefits come
with the more premium.
3. Cover for Health Expenses: These policies also cover hospitalization expenses
and critical illness treatment.
4. Promotes Savings/ Helps in Wealth creation: Insurance policies also come
with the saving plan i.e. they invest your money in profitable ventures.
5. Guaranteed Income:  Insurance policies come with the guaranteed sum assured
amount which is payable on happening of the event.
6.  Loan Facility: Insurance companies provide the option to the insured that they
can borrow a certain sum of amount. This option is available on selected policies
only.  
7. Tax Benefits: Insurance premium is tax deductible under section 80C of the
income tax Act, 1961.
2. Types of Life Insurance Policies
1. Term insurance plan
As the name says Term insurance plan are those plan that is purchased for a fixed
period of time, say 10, 20 or 30 years. As these policies don’t carry any cash value
their policies do not carry any maturity benefits, hence their policies are cheaper as
compared to other policies. This policy turns beneficial only on the occurrence of
the event.
2. Endowment policy
The only difference between the term insurance plan and the endowment policy is
that endowment policy comes with the extra benefit that the policyholder will
receive a lump sum amount in case if he survives until the date of maturity. Rest
details of term policy are same and also applicable to an endowment policy.
3. Unit Linked Insurance Plan
These plans offer policyholder to build wealth in addition to life security. Premium
paid into this policy is bifurcated into two parts, one for the purpose of Life
insurance and another for the purpose of building wealth. This plan offers to
partially withdraw the amount.
4. Money Back Policy
This policy is similar to endowment policy, the only difference is that this policy
provides many survival benefits which are allotted proportionately over the period
of the policy term.
5. Whole Life Policy
Unlike other policies which expire at the end of a specified period of time, this
policy extends up to the whole life of the insured. This policy also provides the
survival benefit to the insured.  In this type of policy, the policyholder has an
option to partially withdraw the sum insured. Policyholder also has the option to
borrow sum against the policy.
6. Annuity/ Pension Plan
Under this policy, the amount collected in the form of a premium is accumulated as
assets and distributed to the policyholder in form of income by way of annuity or
lump sum depending on the instruction of insured.

3. Claim Settlement Process

On the happening of the event, the beneficiary is required to send claim intimation
form to the insurance company as soon as possible. Claim intimation should
contain details such as Date, Place, and Cause of Death. On successful submission
of claim intimation form, an insurance company can ask for additional information
about
1. Certificate of Death
2. Copy of Insurance Policy
3. Legal Evidence of title in case insured has not appointed a beneficiary
4. Deeds of assignment
On successful submission of all the document, the insurance company shall verify
the claim and settle the same.   

4. Principles of Life Insurance?

Life insurance is based on a number of principles that are tailored to meet market
conditions and ensure insurance companies make profits, while offering security
policies to insured individuals.
There are broadly four major insurance principles applied in India, these
being:

 Insurable Interest – This principle pertains to the level of interest an

individual is expected to have in a particular policy. The interest could be a
family bond, a personal relationship and so on. Based on the interest level,
an insurance company can choose to accept or reject an application in order
to protect the misuse of a policy.
  Law of large numbers – This is a theory that ensures long-term stability
and minimises losses in the long run when experiments are done with large
numbers.

 Good faith – Purchasing an insurance is entering into a contract between

company and individual. This should be done in good faith by providing all
relevant details with honesty. Covering any information from the insurance
company may result in serious consequences for the individual in the future.
This being said, the insurer must explain all aspects of a policy and ensure
that there are no unexplained or hidden clauses and that the applicant is
made aware of all terms and conditions.

 Risk & Minimal loss – Insurance is a risky and companies have to do

business and make profits keeping in mind the risk factor. The principle of
minimal risk states that the insured individual is expected to take necessary
action to limit him/her self from any hazards. This includes following a
healthy lifestyle, getting a regular health check-up and more.

5. Points to Consider for Life Insurance

 Research: As an applicant for life insurance, there are numerous policy

options at your fingertips to choose from. It is essential that you do your
research before making an informed decision on purchasing a life insurance
policy, as it can help you save money and receive maximum benefits.

 Read terms and conditions: The terms and conditions of an insurance plan

contain all relevant information regarding the particular policy. Make sure
that you read the fine print in detail and completely understand it before
purchasing an insurance policy of your choice.

 Remember lock-in period: There are instances when individuals purchase

insurance policies without making an informed decision and later realise that
they are unhappy with the insurance policy. In such scenarios, some
insurance companies offer a lock-in time frame, which is a short time
usually 15 days where a policyholder can return the policy to the insurer and
purchase another in case they were unsatisfied with the initial purchase.
  Consider premium payment options: Almost all insurance providers offer
premium payment options consisting of annual, semi-annual, quarterly or on
monthly basis. It is essential that you opt for Electronic Check System
(ECS) payment that will periodically debit your bank account with the
required insurance amount. Also, you can choose from a schedule that will
allow you to make a premium payment with the convenience of interval
payments.

 Don’t Mask Information: There are times where individuals try to hide

information when filling out the insurance application form. All
personal credentials and medical history must be accurately presented to the
insurance company. Misinformation can cause serious issues when trying to
make claims later on.

6. Life Insurance Companies in India

Some of the prominent life insurance companies in India are:
1. LIC – Life insurance corporation of India
2. SBI Life Insurance
3. ICICI Prudential Life Insurance
4. HDFC Standard Life Insurance
5. Bajaj Allianz Life Insurance
6. Max Life Insurance
7. Birla Sun Life Insurance
8. Kotak Life Insurance
Importance or Advantages of Insurance to Society

1. Protects society’s wealth

Through various types of insurance schemes, the insurer protects the wealth of the
society. Life insurance offers protection against loss of human wealth. General
insurance policies protect the property against losses due to fire, theft, accident,
earthquake, etc. As such, both general and life insurances offer protection to
stabilize business condition and financial position.

2. Removes social evils

All forms of insurance tend to reduce the extent of social evils that are meant to
alleviate. The most effective argument for reduction of fire losses is that smaller
losses will make smaller premiums possible.

3. Maintains standard of living

Insurance rescues many people in the society who are rendered destitute through
misfortune. They are able to maintain the standard of living due to high returns.
They reduce the destitution and misery. These could lower the ideals and standards
of conduct of entire communities.

4. Social security benefits

Insurance plays a pivotal role in fulfilling certain needs for which state might have
to provide. The provision for old age, sickness and disability of persons in general.
Those who have their insurance do not become a burden on state insurance plan.
In case of fire, explosions and other calamities that would tend to impoverish
(render poor) families would have been relieved of the financial loss if adequate
insurance had been maintained.

5. Equitable distribution of loss

Insurance distributes the cost of accidental events in a equitable manner. In the

absence of insurance, this would have been paid in a haphazard manner. For
example, the cost of fire insurance is reflected in house rent. In the absence of
insurance, some tenants would pay higher rents than others.