What is insurance?
Protection is a method for dealing with your gamble. At the point when you purchase protection, you buy assurance against unforeseen monetary misfortunes. The insurance agency pays you or somebody you pick assuming something terrible happens to you. Assuming you have no protection and a mishap occurs, you might be answerable for all connected expenses.
In which way or method insurance reduce your financial risk? Or How does insurance help to reduce your financial risk? or What is insurance? It’s Types and Benefits
Imagine you’re driving your car and you hit a deer, which damages your car. If you have the right kind of auto insurance policy, the insurance company will pay the costs of the car repairs (minus the deductible — the portion you have to pay). Now, imagine a water pipe bursts in your bathroom, ruining everything in that room and in the bedroom next to it. Typically, if you have homeowner’s or renter’s insurance, the insurance company will pay to replace some or all of the damaged property, once you pay your deductible. Insurance policies will only pay for things that are described in the policy. So, it’s important to read a policy carefully before you buy it, so you’ll know exactly what’s covered.
What is Insurance Policy?
In insurance, the insurance contract is a policy between the back up plan and the policyholder, which decides the cases which the safety net provider is legitimately expected to pay. In return for an underlying installment, known as the superior, the back up plan vows to pay for misfortune brought about by dangers covered under the arrangement language.
In which way insurance policy work? Or How does an insurance policy work?
Insurance policies are often in place for a specific period of time. This can be referred to as the policy term. At the end of that term, you need to renew the policy or buy a new one. When you buy an insurance policy, part of your responsibility includes paying a fee called a premium. Some premiums are paid monthly, like health insurance. Others may be paid once or twice a year, like auto or homeowner’s insurance. The cost of your premium generally depends on how much of a risk you are to the insurance company. In addition to the premiums, most insurance policies include a deductible. That’s the amount you have to pay first, before the insurance company pays their share. For example, if you have a $500 deductible on your homeowner’s policy and a storm causes $3,000 in damage, you will pay $500 and your insurance company will pay $2,500. With some policies, you can choose your deductible. Usually, a higher deductible means a lower.
Types of Insurance
There are many types of insurance, but some common types are described here.
- Health insurance: Helps you pay for doctor fees and sometimes prescription drugs. Once you buy health insurance coverage, you and your health insurer each agree to pay a part of your medical expenses — usually a certain dollar amount or percentage of the expenses.
Types of Health Insurance policies
There are eight main types of health insurance policies available in India. They are:
- Individual Health Insurance – These are healthcare plans that offer medical cover to just one policyholder.
- Family Floater Insurance – These policies allow you to avail health insurance for your entire family without needing to buy separate plans for each member. Generally, husband, wife and two of their children are allowed health cover under one such family floater policy.
- Critical Illness Cover – These are specialised health plans that provide extensive financial assistance when the policyholder is diagnosed with specific, chronic illnesses. These plans provide a lump-sum payout after such a diagnosis, unlike typical health insurance policies.
- Senior Citizen Health Insurance – As the name suggests, these policies specifically cater to individuals aged 60 years and beyond.
- Group Health Insurance – Such policies are generally offered to employees of an organisation or company. They are designed in such a way that older beneficiaries can be removed, and fresh beneficiaries can be added, as per the company’s employee retention capability.
- Maternity Health Insurance – These policies cover medical expenses during pre-natal, post-natal and delivery stages. It covers both the mother as well as her newborn.
- Personal Accident Insurance – These medical insurance policies only cover financial liability from injuries, disability or death arising due to accidents.
- Preventive Healthcare Plan – Such policies cover the cost of treatment concerned with preventing a severe disease or condition.
Benefits of Health Insurance
After assessing the various kinds of health insurance available, you must be wondering why availing such a plan is essential for you and your loved ones. Look at the reasons listed below to understand why.
- Medical Cover – The primary benefit of such insurance is that it offers financial coverage against medical expenditure.
- Cashless Claim – If you seek treatment at one of the hospitals that have tie-ups with your insurance provider, you can avail cashless claim benefit. This feature ensures that all medical bills are directly settled between your insurer and hospital.
- Tax Benefits – Those who pay health insurance premiums can enjoy income tax benefits. Under Section 80D of the Income Tax Act one can avail a tax benefit of up to Rs.1 Lakh on the premium payment of their health insurance policies.
There may be additional advantages, depending on the insurance provider in question.
- Life insurance: Pays a person you select a set amount of money if or when you die. The money from your life insurance policy can help your family pay bills and cover living expenses.
Types of Life Insurance Policies
There are primarily seven different types of insurance policies when it comes to life insurance. These are:
- Term Plan – After death profit from a term plan is only obtainable for a specified period, for instance, 40 years from the date of policy purchase.
- Endowment Plan – Endowment plans are life insurance policies where a part of your premiums go toward the death profit, while the remaining is invested by the insurance provider. Maturity benefits, death benefit and periodic bonuses are some types of assistance from endowment policies.
- Unit Linked Insurance Plans or ULIPs – Alike to endowment plans, a part of your insurance premiums go toward mutual fund investments, while the remaining goes toward the death benefit.
- Whole Life Insurance – As the name suggests, such policies offer life cover for the whole life of an individual, instead of a specified term. Some insurers may restrict the whole life insurance tenure to 100 years.
- Child’s Plan – Investment cum insurance policy, which provides financial aid for your children throughout their lives. The death benefit is available as a lump-sum payment after the death of parents.
- Money-Back – Such policies pay a certain percentage of the plan’s sum assured after regular intervals. This is known as survival benefit.
- Retirement Plan – Also known as pension plans, these policies are a fusion of investment and insurance. A portion of the premiums goes toward creating a retirement corpus for the policyholder. This is available as a lump-sum or monthly payment after the policyholder retires.
Benefits of Life Insurance
If you possess a life insurance plan, you can enjoy the following advantages from the policy.
- Tax Benefits – If you pay life insurance premiums, you are eligible for tax benefits in India, under Section 80(C) and 10(10D) of the Income Tax Act. Thus, you can save a substantial sum of money as taxes by opting for a life insurance plan.
- Encourages Saving Habit – Since you need to pay policy premiums, buying such an insurance policy promotes the habit of saving money.
- Secures Family’s Financial Future – The policy ensures your family’s financial independence is maintained even after your demise.
- Helps Plan Your Retirement – Certain life insurance policies also act as investment options. For instance, pension plans offer a lump-sum payout as soon as you retire, helping you to fund your retirement.
Now that you know all about life insurance policies read on to understand the various facets of other general insurance policies.
- Disability insurance: Protects individuals and their families from financial hardship when illness or injury prevents them from earning a living. Many employers offer some form of disability coverage to employees, or you can buy an individual disability insurance policy.
- Auto insurance: Protects you from paying the full cost for vehicle repairs and medical expenses due to a collision. In most states, the law requires you to have auto insurance when operating a motor vehicle.