Types of Insurance Policies
In ULIPs, the investment risk in the investment portfolio is borne by the policyholderU
The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.
Insurance can be used for various purposes, right from protecting your assets and life to covering your business and travels. With so many types of insurance policies available, understanding them can help you select the right one for your needs.
What is the basic concept of insurance?
Insurance is a formal agreement between the policyholder and the insurer. You pay a premium based on the type of coverage you need and in return, the insurer provides financial protection for the insured asset or risk.
What are the different types of insurance policies available in India?
Below are the different types of insurance policies available in India:
Life Insurance
Life insurance provides financial protection for your loved ones. You pay premiums to secure life coverage`. In the event of an unfortunate incident during the policy term, the insurer pays the agreed sum to your chosen nominee.
Health Insurance
Health insurance helps cover medical expenses. The policyholder pays a premium and the insurer offers financial protection for healthcare costs such as surgeries, doctor consultations and medicines.
Travel Insurance
Travel insurance protects against travel-related risks, including baggage delays, lost passport and medical emergencies during a trip. It ensures financial support while travelling.
Home Insurance
Home insurance safeguards your house and its contents. If your home is damaged or you lose your belongings due to unforeseen events, the insurer compensates for the loss.
Fire Insurance
Fire insurance covers damage caused by fire, including losses from accidents, riots or natural disasters.
Motor Insurance
Motor insurance protects vehicles, including two-wheelers and four-wheelers. It covers loss and damages to the vehicle and third-party liabilities in case of an accident.
Business Insurance
Business insurance helps companies protect themselves from financial losses caused by theft, legal claims, natural disasters or other unexpected events.
What are the benefits of insurance policies?
| Type of insurance | Benefits and risks covered | Examples |
|---|---|---|
| Life Insurance | Provides financial security to the policyholder’s loved ones in case of the policyholder’s absence | Ruhi, a dedicated homemaker, has life insurance to ensure her family is financially supported in case of her untimely demise, enabling them to carry on with their lives |
| Health Insurance | Covers healthcare expenses, such as critical illness treatments, surgeries, medicines, ambulance, hospital room rent and more | Raj, an adventurous motorcyclist, relies on health insurance to cover all expenses in case of an accident, from ambulance costs to hospitalisation |
| Travel Insurance | Covers travel-related risks like loss or damage to baggage, loss of passport, medical expenses and more | Meera, a passionate traveller, has travel insurance that compensates for essentials if she loses her baggage, ensuring she can enjoy her trip without any hiccups |
| Home Insurance | Covers damage caused to a home and belongings inside the house | Nupur, a homeowner in a coastal region, depends on home insurance to cover damages caused by natural disasters or vandalism, helping her rebuild her home and recover her belongings |
| Fire Insurance | Covers damage caused by fire | Ali, a restaurant owner, is protected by fire insurance, which covers losses and damages to his property and possessions in case of a fire |
| Motor Insurance | Covers loss and damage to the vehicle. It may also cover damage to a third party in an accident | Vikram, a daily commuter, benefits from motor insurance, which covers repair costs for his vehicle and third-party liabilities in case of an accident |
| Business Insurance | Covers damage and loss caused to a business | Salman, a small business owner, counts on business insurance to keep his operations running smoothly in the event of theft or legal issues, ensuring his business stays afloat during unforeseen circumstances |
What are the tax* benefits of various insurance policies in India?
Below are some tax* benefits you can enjoy with different types of insurance policies:
Section 80C
Life insurance policy premiums are eligible for a deduction of up to ₹ 1.5 lakh subject to conditions prescribed under Section 80C* of the Income Tax Act, 1961.
Section 10(10D)
The proceeds from life insurance policies is exempt subject to conditions prescribed under Section 10(10D)* of the Income Tax Act, 1961.
Section 80CCC
Contributions made to designated pension plans provided by life insurance companies qualify for a deduction of up to ₹ 1.5 lakh per annum under Section 80CCC* of the Income Tax Act, 1961. Do note, this falls within the combined limit of ₹ 1.5 lakh per annum available under Section 80C* and Section 80 CCD(1)*.
Section 80D
Premiums paid for health insurance policies are eligible up to a maximum deduction of ₹ 1 lakh under Section 80D* of The Income Tax Act, 1961.
Section 37(1)
Businesses can claim an exemption for premiums paid toward employer-employee insurance under Section 37(1)* of the Income Tax Act, 1961.
List of commonly used insurance terms you should know about
Below are some common insurance terms used in different types of insurance policies:
Premium
The premium is the amount paid by the policyholder to the insurer for coverage under the insurance plan.
Sum Assured
The sum assured is the amount of financial coverage the insurer provides to the nominee or policyholder in case of a claim.
Life Assured
The life assured is the individual who is insured under the policy. In the event of their absence, the insurance claim is paid out.
Nominee
The nominee is the person chosen by the policyholder to receive the sum assured in the event of the policyholder’s absence.
Policy Term
The policy term is the period for which the insurance policy remains active.
Maturity Benefit
The maturity benefits are the financial benefits a policyholder receives if they survive the insurance term.
Riders
Riders refer to additional coverage options that can be added to the base insurance policy for extra benefits.
Free-Look Period
A free-look period is the time frame after purchasing the plan, during which the policyholder can review the policy and decide whether to continue with it or not.
Waiting Period
The waiting period is the period after purchasing the plan during which insurance benefits cannot be claimed by the policyholder.
Surrender Value
The surrender value refers to the cash value that the policyholder receives if they decide to surrender the insurance plan before its maturity date. It is adviced to refer the policy document for details of the surrender value.
What are the Different Types of Life Insurance Policies in India?
Below are some different types of life insurance policies in India:
Term Insurance
Term insurance offers a life cover` to the policyholder's loved ones in the event of an unfortunate incident with the insured during the policy term.
Retirement/Pension Insurance Plans
Retirement or pension insurance plans help policyholders build a steady income stream for retirement while also offering life coverage` to protect their loved ones.
Endowment Plans
Endowment plans serve dual purposes. They help you create low-risk savings while offering insurance coverage` for your loved ones in case of an unfortunate event.
Unit Linked Insurance Plans
ULIPs combine both insurance and investment. They allow you to secure your loved ones with life cover` while investing in equity, debt or hybrid funds~ for financial growth.
Child Insurance Plans
Child insurance plans are designed for parents, grandparents or guardians. They help save for a child's future needs while providing life coverage` in case of the parent's absence.
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