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Understand different categories of insurance policy

Basically insurance is a plain and simple concept of protecting a person's life or property. It also provides protection in cases of medical emergencies. But the insurance agents have made this simple concept very complicated. So, to avoid the agents, it is necessary to know various types of insurance policies. This would enable us to assess our needs and take particular policy according to our needs.

For a layman, insurance is the transfer of risk by an individual. A person will be known as the owner of the policy or the policy owner if he/she takes an insurance cover. The insurance company receives payment which is called premium and it is supposed to compensate the person in the event of loss or damages sustained by him/her, or his/her nominee in case of his/her death. Insurance is very important. It provides a protective umbrella to the family members of the insured person. However, we must understand different types of insurance policies, because unfortunately many agents sell such policies which are not required by us. In this article, we will discuss different types of insurance policies. It is felt that if we understand different types of insurance policies, this would help us not to fall in the trap of dishonest agents.

Types of policies

At the preliminary level insurance policies can be divided into five types. These five types of policies are life insurance, health and accidental insurance, property insurance, motor insurance and travel insurance. We will discuss these five types of insurances.

Life insurance

If an earning person has a family which is depending upon that person for financial support, buying a life insurance policy should be the foremost consideration. The main purpose for buying a life insurance is to protect the future of the dependent people in terms of finance, in case of sudden death of the earning member.

However, such a simple concept has been made complex by insurance companies. In many cases, life insurance has become very complicated and many people/policy-holders take life insurance policy as a vehicle of investment. In this connection, it is clearly stated that life insurance policy is not a vehicle for investment. In case of investment, the rate of return is very important, which is very low in case of insurance policies We should not depend on the maturity amount of life insurance policies for achieving any goal. So, insurance experts advise people to take plain and simple term insurance as early as possible of their life. Term insurance is a pure life insurance where a person is required to pay a negligible amount to purchase a policy which will be a substantial amount in case of his/her unfortunate death. However insurance companies will not pay anything to the term policy-holder after maturity.

Health and accident insurance

This is another essential requirement. Nowadays medical expenses have sky-rocketed. So, it is imperative for every earning person to take health and accident insurance in respect of himself/herself and family members. This will help meeting unforeseen expenditure due to medical reasons or accidents. Insurance experts advise us to take plain simple vanilla health insurance for the entire family. In this case also health insurance should be taken as early as possible. The early the health insurance is taken, the less will be the premium. Generally, health insurance is often provided by the employers. But if the employer does not provide it or if the person is self-employed, he/she must take a health insurance which provides extensive coverage.

Property insurance

We acquire movable and immovable properties with our hard-earned money. We spend more than ten years of time to purchase a flat in big metro cities and to subsequently repay the loan. So, it is imperative on our part to take insurance for the protection of the flat. Similarly, we must take fire insurance to protect our movable and immovable properties. These insurances come under the category of general insurance. In India, some insurance companies are engaged in general insurance (for example General Insurance Company). To protect our movable and immovable properties from fire, theft, natural calamities, etc, it is always preferable to insure our valuable properties.

Motor insurance

A person needs motor insurance when he/she buys a motor vehicle. Motor insurance covers accident or theft of motor cycle, car or truck. There are three common types of motor insurance available in the market. These are: 3rd Party insurance, 3rd party fire and theft and comprehensive cover. The level of coverage taken by a particular person dictates the claim, if the vehicle owned and insured by the person sustains loss or damage.

Travel insurance

Travel insurance is a new entrant in Indian insurance market. Although it is not very popular, it is absolutely necessary at the time of foreign travel. Travel insurance cover is usually limited to the duration of the travel. However, some insurance companies may offer various compensation of protection to address specific needs of customers. This may include long term annual policy for frequent travelers. Travel insurance can be purchased for the entire family to ensure against travel-related accident loss or various interruptions due to medical causes or other reasons.

Concluding comments

It is extremely necessary for all of us to understand different categories of insurance policies. This would help us to understand our specific needs and we can purchase insurance policies according to our needs. Understanding different types of insurance policy helps us not to get unduly influenced by the insurance agents.

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Author: Earcna Entriken29 Aug 2017 Member Level: Bronze   Points : 0

Have all kind of insurance policies tax exemption in India?

Author: DR.N.V. Srinivasa Rao30 Aug 2017 Member Level: Platinum   Points : 6

The author has given a good account of various insurance policies. It will give a fair idea about various insurance policies. I know another two policies.
1. Keyman insurance: This is for a company. Company can insure their important person. Keyman is a person to whom something happens damage will be high to the organisation. Generally CMD or MD or Chairman can be insured in this. The key man insurance policy will be done by the company. The premium paid will be exempted from income tax as it can be shown as expenditure. In case if there is any causality to the keyman company will get the insured amount. This is useful for the companies which are generally run by a single person as a proprietor.
2.Married women's property Act: A person can take a policy under this scheme. Generally proprietary or partnership firms take loans from various financial institutions. In case of any loss or winding up the company the financiers will sell all the assets of the owner and their family members to get back their money. The policy taken under this act can't be touched by them. It can't be attached to anybody. The proceedings will go only to the wife and children. Even supreme court also can't touch these policies.
A good and informative article by the author. Thanks for sharing the information through this resouce.

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