Throughout our lives, we work, invest, create value and do everything to ensure a secure future for our loved ones. But life is full of surprises and you should be prepared for them. Insurance helps you to be financially prepared for any unexpected situation. Whether it is your life, health, home, car or even a trip abroad, getting insured is a one-stop solution to life's many uncertainties.

What is Insurance?

Insurance definition: Insurance is a legal agreement between a person, known as the policyholder and an insurance company. According to this agreement, the policyholder pays a premium to the insurance company. In return, the insurance company provides financial protection to the policyholder in case of an unfortunate event during the policy term.

Insurance protection can be bought to cover various aspects of life, such as cars, homes, healthcare, or life itself.

How does insurance work?

When you select an insurance provider, they assess your needs and present situation. This includes your lifestyle, your health history, any risks involved in your profession, etc. Based on these factors, and the requirements of your family, a cover amount is decided also known as the sum assured.

In case of an unfortunate event, your family gets this cover amount to help them meet their financial requirements. However, for your family to avail these benefits, it is important that you pay your premiums regularly.

What are the different types of insurance available in India?

General Insurance

As the name suggests, general insurance provides coverage against any financial loss caused by damage or loss of insured assets. General insurance can be bought to cover travel, property and others.

Life Insurance

Life insurance can be bought to ensure financial security against loss of life during the policy term. Life insurance plans offer a sum assured to the policyholder's family in the event of the policyholder's death or disability. It can also include a savings component and serve as an investment option to plan for diverse financial goals, such as retirement, children's higher education or marriage and others.

Health Insurance

Health insurance offers financial coverage against medical expenses arising out of an illness or injury. It covers medical emergencies, health check-ups, hospitalisation costs, ambulance costs, prescription medicines and other similar expenses.

Motor Insurance

Motor insurance, also known as car or two-wheeler insurance, provides financial coverage for vehicles against physical damage resulting from natural disasters, accidents, damage and loss. It is compulsory to have motor insurance in India.

Home Insurance

Home insurance offers comprehensive protection against loss or damage to your home. It covers all contents and structure of your house.

Fire Insurance

Fire insurance covers losses and damages incurred due to fire outbreaks caused by natural disasters or other human activities.

Travel Insurance

Travel insurance provides financial protection against medical expenses, loss of belonging, flight cancellations, and other similar incidents while travelling. It can be used for travel, whether within India or abroad. Some countries have mandatory travel insurance requirements for issuing visas.

Benefits of Insurance

Below are some benefits of insurance:

Financial protection

Insurance plans safeguard your financial interests in case of loss and damage. They offer financial protection against the uncertainties of life and ensure you have the means to move on and overcome any losses with adequate compensation.

Risk management

Insurance serves as a powerful tool for managing risks. Insurance for assets, such as your house, car or other precious possessions, lowers the risk of loss or damage. In case of any untoward incident, you can claim the insurance payout and cover the losses.
Similarly, in the case of health or life insurance, the payouts can be used to cover medical expenses and can help a grieving family minimise the risk of loss of income.

Peace of mind

Regardless of whether you ever need to make a claim, purchasing insurance provides peace of mind. The knowledge that you have a financial safety net to rely on can be immensely reassuring, as it offers you a sense of security and stability.

Legal compliance

Purchasing the appropriate insurance plan ensures legal compliance and helps avoid potential legal complications. While not all types of insurance are mandatory by law, certain ones are required in specific situations.
For example, according to the Motor Vehicles Act in India, motor insurance is obligatory for all vehicle owners. Similarly, many countries mandate travel insurance with a specified coverage amount as a requirement for obtaining a travel visa.

Access to healthcare

Medical expenses can quickly deplete a large portion of your savings. Factors such as food adulteration, pollution, sedentary lifestyles and rising stress levels contribute to the increasing prevalence of diseases. Coupled with medical inflation, these factors can create a barrier to accessing necessary healthcare when needed.
However, with health riders available through term life insurance policies, you can ensure that you always have the means to afford healthcare and prioritise your physical and mental well-being.

Promotes economic stability

Adequate insurance provides a crucial safety net and eliminates the need to dip into your savings or compromise on your planned and unplanned financial needs in the event of an unforeseen circumstance. With the appropriate insurance plans in place, you can minimise losses without deviating from your financial journey.

Stimulates investment and innovation

Some insurance plans provide the opportunity to invest your money while also securing an insurance cover. These plans are designed to facilitate wealth creation and can assist you in preparing for numerous future goals, like retirement, house purchase and others while protecting your family in case if an unfortunate event.

Insurance Components

Below are some insurance components you must know of:

Premium

This is the monthly sum that you pay to your insurance provider. The premium is a pre-decided amount and depends on several factors like your age, medical history, insurance cover, etc.

Policy cover

All the information about your insurance policy is mentioned on your policy cover. This document includes your cover amount, terms and conditions of the policy, exclusions or limitations, etc.

Policy term

It is the period for which the policy is valid. It may vary depending on the type of policy. For example, a term policy is valid for only a predefined period as mentioned in the policy. On the other hand, a whole life policy is valid until the death of the insured.

Policy Limit

The policy limit refers to the cap on the total benefits provided by the insurance company. This is the maximum amount that an insurance company will pay for an insurance claim during the policy term.

Premium payment term

Although many people assume that payment term lasts a lifetime. But it may be equal to or less than the policy term. There are also some policies that require you to pay a premium for as long as you live.

Sum Assured

Sum assured is the money paid to the policyholder or the plan's beneficiary in the event of an unfortunate event during the policy term. The sum assured is an assured benefit that can be chosen at the time of purchasing the insurance plan.

Maturity Benefit

Some life insurance policies offer a maturity benefit that is given to the policyholder on surviving the policy term. The maturity benefit represents the savings or investment component of an insurance plan. It is given in addition to the sum assured.

What are the tax^# benefits of insurance?

Section 80C

Section 80C^# of The Income Tax Act, 1961, offers a deduction^# of life insurance premiums paid in the financial year. The section allows you to claim a deduction of up to ₹1.5 lakh annually.

Section 80D

Section 80D^# of The Income Tax Act, 1961, allows you to claim a total deduction of up to ₹25000 on health insurance premiums paid in a year. The exact deduction^# limit can differ based on your age. However, you can claim deductions on policies for yourself, your spouse, dependent children and parents.

Section 10(10D)

Proceeds received under life insurance policies are exempt subject to conditions mentioned under section 10(10D)^* of the Income Tax Act, 1961.