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Your property and life are surrounded by the risk of destruction, disability, or death. When a mishap happens, it results in financial losses and needs money for recovery. Instead of bearing the brunt yourself, insurance is a sensible way to transfer the risk to an insurance company. Want to know what insurance is? It is a legal agreement between the insured and the insurer, wherein the insured pays a regular premium to the insurance company, and the insurer provides financial coverage up to the agreed limit when the need arises.
Insurance is a financial protection policy that provides monetary support during unpredictable contingencies. By signing a policy bond and collecting insurance premiums from the insured, the insurer agrees to cover the losses according to the insurance type selected.
There are different types of insurance plans to cover your life, health, automobile, etc. In the following sections, you will learn what insurance is and types of insurance, its features, benefits, working, tax benefits, and other crucial aspects you must know.
The insured and the insurer sign a legal insurance contract called the insurance policy, a document containing coverage details under certain conditions and circumstances. In case of damage to the insured person or object, the insurance company pays the insurance amount to cover the financial loss or related expenses. Generally, the insurance premium you pay is much less than the insurance amount the insurer agrees to pay in case of damage. The insurance company provides high coverage for small premiums because very few people with insurance actually claim the insurance. That is how you can get a big amount of insurance at a very low price.
Although anyone can seek insurance, the decision to insure the person or object is at the insurance company's discretion. The insurance provider evaluates your application to make a decision and decide your premium amount. Most insurance companies deny or charge high-risk applicants hefty insurance premiums.
A deductible is a particular amount you agree to pay out of your pocket before the insurance company pays for the claim. Insurance providers use deductibles as a deterrent to unnecessary and insignificant claims. For instance, a health insurance plan with a Rs. 10,000 deductible means you must pay the first Rs. 10,000 towards the claim. If your medical treatment costs Rs. 30,000, you must pay the first Rs. 10,000, and the insurance company pays the remaining Rs. 20,000.
Depending on the insurance and types of insurance, the deductible is applicable per claim or per policy. Insurance plans with high deductibles have smaller premiums because the upfront payment the insurer must make results in fewer claims.
A life insurance policy provides financial protection in case of the policyholder's
disability, incapacity, or death. You must get life insurance to leave financial support for your family in the event of your death. If you lose your life or become incapacitated during the life insurance period, the insurance company will pay a substantial sum to your nominee to cover their financial needs.
Life insurance plans are of two types: term insurance and life insurance. If you pick term insurance, the insurer will compensate your family only if you die during the insurance period of 10-20 years. On the other hand, a life insurance plan provides protection throughout your life term, typically up to 100 years of age.
Health insurance covers the costs of medical treatments during accidents or for
various ailments. You may buy generic insurance or insurance for a specific disease. The premium you pay towards the policy usually covers medication, hospitalisation, and treatment costs up to the insured amount limit.
A single health insurance may include all your family members, including your spouse, children, parents, and siblings. When a medical need arises, you can approach a hospital having a tie-up with your insurance company. Here, you can avail of cashless services using just your policy number. If the hospital does not have a tie-up with the insurer, you can pay the cost during the treatment and reimburse it later.
According to Chapter 11 (Section 145 to 164) of The Motor Vehicles Act, 1988, every car owner must have at least a third-party insurance policy in India. Apart from being a legal obligation, it protects you from financial loss in case of any untoward event like a road accident. There are different kinds of insurance plans for car owners. Depending on the type of insurance cover you choose, the insurance company will cover damage done to your car and damage your vehicle caused to another person or their property. Some car insurance plans also compensate for your car damages during a natural disaster like an earthquake or man-made calamity like a riot.
Education insurance is like an investment scheme, where you pay
premiums until your child turns 18 or attains a certain pre-agreed age. On maturity, you get an assured sum that you can use for your child’s education only. Estimate the amount you would need to fund your child’s education and buy an insurance policy accordingly. The higher the estimate, the bigger will be the premiums. So, decide adequately.
Like car insurance, bike insurance is also mandatory for two-wheelers, including
bikes, scooters, mopeds, etc. Most importantly, it protects your two-wheeler against any damage, loss, or theft. If something happens to your bike, you can claim financial assistance from your insurer to cover the costs of repairs. If the bike gets stolen and the authorities cannot trace it, you get an amount equal to the bike's insured declared value (IDV), which the insurance company determined according to its market value.
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Here is a list of benefits and importance of insurance you must know:
Insurance ensures peace of mind when something unexpected happens. You can find an insurance plan to cover almost anything, including your life, car, bike, education, health, etc. The type of insurance plan you choose depends on your needs and priorities. While car and bike insurance are mandatory, and you cannot legally drive a vehicle on Indian roads without insurance, life, health, and education insurance plans are optional. Life insurance supports your family and loved ones if something happens to you at an unexpected time. Health insurance covers the medical costs in case someone in your family needs medical treatment. Education insurance provides a sufficient lump sum amount when the time comes to invest in your child's education. So, prioritise things in your life and decide on the type of insurance you need.
Apart from all the protection benefits mentioned in this guide, an insurance policy provides several tax benefits under various sections of the Income Tax Act. These are as follows:
Many insurance companies provide cashless facilities in their health and motor insurance plans. It is a great way to shorten the procedure of claiming refunds from the insurance company after incurring the costs. It allows you to avail yourself of the required repair or treatment quickly without handling much paperwork. It is an excellent facility that proves useful when you don't have enough ready cash in an emergency.
Several factors determine your life insurance policy premiums, including gender, age, lifestyle, income, profession, health condition, habits, etc. Claim-free years can reduce insurance premiums for various insurance types of insurance.
A car insurance plan is valid for a fixed period only, usually one year. After that period, you must renew the plan on time to enjoy the continued benefits of the policy. If the insurance policy expires and you do not renew it, the insurance company will not provide any compensation in case something happens during this break-in period. Therefore, car insurance policy renewal is necessary for continued policy benefits
Third-party insurance for automobiles is mandatory under the Motor Vehicles Act 1988. Other insurance and types of insurance are optional to seek financial security and peace of mind during an emergency
You have a few days of break-in period during which you can renew your expired insurance policy. However, the bonuses and other benefits may be reduced.
This article is informative in nature and does not serve as solicitation material. Before purchasing an insurance plan, read the product brochures for terms and conditions, exclusions, warranties, etc. A financial advisor can help you make an informed decision regarding insurance purchases. Tax benefits are subject to amendments from time to time according to the Income Tax Act 1961.
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