Wikipedia of Finance - e-learning course on Financial Planning Wikipedia Chapter - Types of Insurance Offered by Insurance Companies

Types of Insurance offered by Insurance Companies


When it comes to personal finance, the topic just cannot be complete without discussion on insurance. We all know that no buddy knows the future. No one can just tell if someone will be living tomorrow (next day) or not. This is such a high uncertainty. In India, there is either one person earning bread and butter or a few, but it is damn sure that there will be some dependents in every family unit. So, the real danger is for those who are dependent when the miss-happening happened with the earner. We being human live in society, and our evolution has made us to live depending on one another (human kind as a whole). We have learnt to share the losses as well as the gains. There are various different types of insurance policies which will help you to protect your future. Insurance is a typical example when society shares the losses of an individual. In this tutorial chapter, we will list and explain about insurance and its types, categories of insurance, various types of insurance.

Principles and Functions of Insurance:

The insurance companies take the responsibility of taking payment from lots of people, and pay for the losses if someone faced a loss (out of only those who have participated in companies insurance policies). This is the primary function of insurance companies. These companies earn on the money they collected from public and share the profit with the people who have purchased the insurance products of the company. Generally, these companies invest the collected money in share market so that the returns could high. Also, companies give the option to the insurance policy holders to decide what percentage of their premium should be invested in the share market, and what percentage in the more secure funds like protection funds (government sectors). All this is managed by dividing the paid premium into small units called NAV (Net Asset Value). And the number of NAVs and the value of each NAV counts towards the fund value of an insurance policy account.

Various Types of Insurance:

If a person wants to manage his personal finance very well and achieve the financial goals, then he just cannot escape from Insurance. Insurance is such a nice thing to know in details and use the associated facilities. Below are the types of insurance one should consider for future protection.

1. Life Insurance:

There is several banks and insurance companies offering life insurance and every company have dozens of products. Every product is different in its own way in terms of what that product offers, the benefits, and the way it can protect future. Though there are hundreds of various, but few things are always common with them. Here protection is for human life or health related. There will be the payment equal to sum assured (lump sum cash payment) to the beneficiaries. The other facilities could be payment of policy premium, payment of medical expenses, etc.

Some Important Types of Life Insurance are:

A) Life Insurance Policies: Some popular plans are – term plans, retirement plans, wealth plans, child education plans. According to IRDA instruction, the policy holder has to pay the premium for the minimum of 5 years before he can surrender the policy. This restriction is applied while keeping the interest of policy holder in mind, as the wealth accumulation seems start in real means after 5 years. The initial years put the policies in the loss, as banks has to deduct the premium amount towards the various incurred charges such as agents commission, filing charges, service charges etc.

B) Health Insurance Policies: Life insurance policies deal with the life of a person, and health insurance policies deal with the health of a person or a family unit. This to cover the medical bills and emergency medical (accidents etc.) help. This is one of the main types of insurance which everyone should have. It is highly recommended in-case you haven’t thought of it till now.

C) Casualty Insurance Policies: It covers a broad spectrum of insurance that includes worker compensation in case of casualty, crime insurance (injuries during criminal happenings), terrorism insurance (cover the loss or damage caused by terrorist activities), kidnap and ransom insurance, and political risk insurance. As said, this covers bigger spectrum, so it not only cover the life or health losses but also the property losses (like theft and robbery).

Life insurance is such an important thing that the Government of India encourages it by giving lots of tax saving benefits.

2. General Insurance:

The insurance of property is referred as general insurance. The general insurance is. As there are several types of insurance to protect properties we own, so banks have several insurance products for them.

Some Important Types General Insurance are:

A) Auto Insurance: This is vehicle insurance. In India, buying auto insurance is mandatory. The risk involve while driving or riding a car or a scooter or any vehicle in general is quite high. In fact, for more than 99% of population, the risk on road or while travelling is the biggest risk which they have to deal with every day.

There is a little glitch in India that auto insurance is mandatory but life insurance is not. Probably, this is because a huge percentage of population is living under poverty line and they cannot afford the premium of life insurance. Good thing happened in current year is that Prime Minister Mr. Narendra Modi has launched as many as 8 different insurance policies targeting economically weaker people of India. The premiums are so small that even those living under poverty line can participate in these insurance policies.

B) Home Insurance / Property Insurance: Insurance of real estate property is covered under these schemes. There are various different types of insurance policies under home insurance to protect against natural calamities. Read the offer document carefully and coverage before spending money on it.

C) Income Protection Insurance: What if someone become disable to work anymore? Keeping this though income protection insurance products are offered by insurance companies.

D) Card Protection: Now a days, cards are widely used by individuals rather than cash payment. There are various loses of different cards like credit card, debit card, loyalty card and membership cards etc which are covered here. This is one of the common types of insurance which are preferred recently.

In conclusion, there are various different types of insurance policies offered by insurance companies. Everyone should participate in life insurance, health insurance, auto insurance, home insurance, and other insurance policies for the better safeguard of life and finance.

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