Insurance

Types of Insurance

In a broader aspect, Insurance can be divided into two types:

  1. Life Insurance

    Life is at risk of death and disability due to variety of distressful events, including the natural and accidental ones. The loss of life or disability impairs one’s ability to work and earn for his family. The insurance can take care of income needs of family when the sole breadwinner of family is not able to provide for them. The insurance company provides certain pre-specified sums, determined usually on the basis of future income of the family that will be lost if the earner becomes disabled or dies unfortunately. However, this is not the only benefit of life insurance as it also enables one to invest and save for meeting the future expenses for which raising money at once is not possible e.g. child education, marriage, retirement, etc.

    Types of Life Insurance:

    1. Protection Products

      This type of product protects the family from the loss of income in case of the demise of the policyholder. Presented below are few of the protection product examples:

      Term Life: Term insurance offers protection for a specific period of time. The beneficiaries will get sum insured amount if the insured person (the earner) dies or get disabled. The policyholder does not get anything if the contingent event i.e. death or disability does not occur during the term of the policy i.e. the time-period for which policy is purchased. The term life insurance is the best option for getting insurance protection at the least price in comparison to products having both protection and saving element. This is pure protection with no saving element.

      Health and Personal Accident The insurance can also provide for health expenses and medical treatment in case someone meets an unfortunate accident. The health and personal accident insurance commits to provide for treatment of the health disorder and accident for a pre-specified period of time i.e. policy tenor in accordance with the terms of the policy.

    2. Saving Products

      The saving insurance products enable the person to invest and save for the future undertakings while also providing insurance protection to the life of the insured.  The premium paid for such policy is divided into two portions: the protection and the saving.  The former is utilized for cost of insurance and the latter is accumulated to add to the cash value of the policy.  The value of the insurance policy keeps on increasing over the period, with accumulation of portion of premium amount.  The policyholder usually has the option to surrender the insurance policy at any time to get the cash value built against it.  Few of the insurance products with saving component are listed below:

      Ordinary Life / Whole Life: This policy provides insurance protection for whole of the life and beneficiaries are paid the policy’s sum assured value at the death, be it accidental or natural, of the insured.  The policyholder can also surrender the insurance policy during his life time and obtain the value built against the policy till that time period.

      Universal Life Insurance​: The insurance can also provide for health expenses and medical treatment in case someone meets an unfortunate accident. The health and personal accident insurance commits to provide for treatment of the health disorder and accident for a pre-specified period of time i.e. policy tenor in accordance with the terms of the policy.

      Variable Life Insurance/ Unit-linked Policies:
      Variable life insurance is a kind of insurance where the death benefits and cash values depend on the investment performance.  If the investments earn good returns, the amount payable on death and the cash value of policy will be higher.  Similarly, the values will be lower if investment does not go well.  In short, this policy carries the investment risk.  However, the policyholder may opt for guaranteed or fixed death benefit at certain price.  The investment amounts are broken into units for the purpose of allocation to each policyholder and value of such units is determined and declared on regular basis.  The policyholders can choose where and in what proportion they want to invest i.e. debt or equity or both in varying proportions.

      Pension/ Annuity Insurance:
      In the pension products one gets fixed amount at regular intervals to provide for your expenses at the retirement age when you are not able to earn otherwise.  The pension or annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.  The annuities can be created for entire life of the individual or their spouse and also for a specified term such as 20 years or 10 years etc.  It is at the discretion of the individual which product he chooses according to his personalized requirements.

    How life insurance works?

    Insurance of life can provide for you and your loved ones in a number of manners.  It compensates for lost income in case one is unable to work and earn.  It helps to save and gather money to spend in senior years without having to worry about expenses.  One can also invest and save for spending on the essential future undertakings of the family such as child’s marriage, higher education of children from a renowned institution, or using the money to buy a good house in older age.  One can also have the family’s income needs protected and avail a saving plan simultaneously.

  2. Non-Life Insurance

    The assets and property of a person are at risk all the time. The loss of assets due to any unfortunate event gives financial shock to hard earned income and savings of a person. How great would it be if someone could take care of all the risks and compensate for all the costs incurred due to loss of assets? That’s what insurance company is there for. The insurance covers the risks associated with property, assets, and belongings and protects against the financial hit caused due to loss.

    Types of Non-Life Insurance:

    Auto or Motor Insurance: The comprehensive car insurance is the widest form of cover, whereby the policyholder is protected against financial losses of all kinds, accidental loss to vehicle, theft of car and even the third party liability claims.  The third party liabilities include liability arising out of financial losses due to accidental damage of all forms to third party, property damage or bodily injuries and death.  Besides covering accidental damage and collision, it also covers overturning, fire, theft and damages due to natural disasters, such earthquake and hails.

    Household Comprehensive Insurance: This insurance policy is available to provide cover to building of a house, which may be in a form of bungalow or an apartment.  It covers the entire furniture, fixture, electronic items, carpets, etc. against various risks such as fire, burglary, etc.

    Travel Insurance:Travel Insurance covers medical expenses, lost financial expenses such as money paid in non-refundable pre-payments and other losses incurred while traveling, either locally or internationally.

    Personal Accident and Health Insurance: In case of any injury or illness, the insurance company will pay for all covered expenses as mentioned in the insurance policy, if an accident and health insurance policy is in place.  One can purchase only accident insurance or health insurance or both in a single policy.

    Fire insurance​: Fire insurance protects people from the losses due to fire.  When a property is insured with fire insurance, the insurance policy will pay out in the event that the structure is damaged or destroyed by fire.  Some policies also provide a living allowance which allows the victims of a fire to rent temporary housing while their homes are repaired.

    Cash insurance: The kind of insurance product is designed to cover risks such as Cash in safe, Cash in transit and Cash in counter.

    Aviation insurance: Usually, an individual person does not have to buy it, instead the law requires all airliners to arrange such insurance and all passengers of an airplane are covered under aviation insurance.  In case of any unfortunate event causing injury, death/ loss of life and baggage, the passengers or their heirs will get compensated. 

Group Life Insurance

Group Insurance is offered by an employer or large-scale entity (for instance, association or labor organization) to its workforces or employees. Group life insurance is generally offered as a piece of a larger employer or membership benefit package.

Benefits of Group Insurance To Employers

  1. It meets the statutory obligations;
  2. It raises the morale of workmen/employees;
  3. It reduces turnover of the employees/workers;
  4. It improves the productivity and efficiency of the organization
  5. The cost of providing Group Insurance is a deductible expense and to that extent it reduces tax liability.

 

Benefits of Group Insurance To Employees

It fulfills the social and economic needs of the workers/employees and it provides their families an excellent monetary compensation in the case of death or disability of the breadwinner.

Pensions

It is generally a saving, or can be considered as a contribution, which is collected during the working life of an individual and invested profitably. After retirement the individual is entitled to a steady monthly income from a fund made up from the earlier savings.

In a sense, it is a reward to the employee, granted today, while money is to be received on retirement.

The monetary contributions towards a pension plan are often invested in government and infrastructural bonds and offered in the form of borrowings to such entities. While this mechanism of investment is supposed to be completely safe, there is always a possibility; as remote as it might be, that an overextended private pension plan may deplete all its liquidity and find itself unable to make good on its promise of regular payments on retirement to the contributors of the plan. Pension insurance will help to guarantee that regardless of the financial position of apension fund, the insurer gets his benefits.