The life and property of an individual are surrounded by the risk of death, disability, or destruction. These risks may result in financial losses. Insurance is a well-advised way to transfer such risks to an insurance company.

What is Insurance?

Insurance is a legal agreement between two parties i.e. the insurance company (Provider) and the individual(Policyholder). Under the contract, you pay regular amounts of money (as premiums) to the insurer, and they pay you the sum assured on unfortunate events that arise, for example, untimely demise of the life insured, an accident, or damage to a house, etc.

How does insurance work?

The insurer and the insured get a legal contract for the insurance, which is called the insurance policy. The insurance policy has details about the conditions and circumstances under which the insurance company will pay out the insurance amount to either the insured person or the nominees in case of an eventuality.

Insurance is a way of protecting yourself and your family from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid. The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance. This is why you get insurance for a big amount at a low price.

Any individual or company can seek insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies refuse to provide insurance to high-risk applicants.

Types of Insurance in India

The five most common types of Insurances that people buy are::

  • Life Insurance
  • Health Insurance
  • Motor Insurance
  • Home Insurance
  • Education Insurance

Life Insurance

As the name suggests, life insurance is insurance on your life. You buy life insurance to make sure your dependents are financially secured in the event of your untimely demise. Life insurance is particularly important if you are the sole breadwinner for your family or if your family is heavily reliant on your income. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of the policy.

Health insurance

Health insurance is bought to cover medical costs for expensive treatments. Different types of health insurance policies cover an array of diseases and ailments. You can buy a generic health insurance policy as well as policies for specific diseases. The premium paid towards a health insurance policy usually covers treatment, hospitalization, and medication costs.

Motor/Vehicle Insurance

In today’s world, vehicle insurance is an important policy for every vehicle owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners.

Home insurance

Home insurance, or property insurance, covers your residence against natural calamities. It’s natural to want the best for your home, because home is where the heart is. However, unforeseen risks can come knocking at any time.

Education Insurance

Child Education Insurance Plans are insurance plans that take care of your protection and savings needs for securing the future of your children. As a parent, one of your most important goals would be to make sure that your children have a bright future and lead their lives comfortably. These plans can help you achieve this by saving for your children’s higher education at a prestigious university.

In our Child Education Insurance Plan, you pay premiums for a specified period (monthly, half-yearly, yearly or single pay). Once the policy term ends, you receive a lump-sum amount called the Maturity Benefit. In case of an unfortunate event during the policy term, the company offers your nominee the life cover amount. The company also waives the future premium payments* for the remaining policy term to ensure that your children’s future is always secure. This benefit is available, provided all due premiums are paid.

What are the tax benefits on insurance?

Other than the protection benefits of insurance policies, you can also avail income tax benefits.

Section 80C

The premium paid to buy life insurance policies are eligible for deduction from the taxable income, Under Section 80C of the Income Tax Act. The upper limit for these deductions is Rs. 1.5 Lakh.

Section 80D

A health insurance premium paid to buy policies for yourself and your parents is also tax-deductible under Section 80D of the income tax Act 1961.

Section 10(10D)

The life insurance benefits that you or the insurance policy nominee will receive from the insurer are tax-exempted under this section.

You can claim these tax benefits of insurance at the time of filing your income tax returns.

Get an Insurance to Stay Protected

Staying secure with insurance is a necessity in our times. While many invest in different types of insurances, not everyone knows about the many advantages it offers. Insurance, like Life Insurance, secures not only yours but also your family’s financial future safely and affordably. Moreover, investing in Life insurance encourages a regular habit of saving money. Thus, it empowers you to build a significant corpus.

Frequently Asked Questions (FAQs)

Q. What are the factors that affect life insurance premium?

Several factors determine the premium of a life insurance policy, such as your age, gender, health condition, income, lifestyle, and profession. Also, claim-free years can help in reducing insurance premiums for certain types of insurance policies.

Q. What is the waiting period under insurance policies?

The waiting period refers to the period for which an insurance policyholder must wait before the insurance coverage comes into effect. He/she may not receive insurance benefits for claims filed before the waiting period is over or until the insurance coverage begins.

Also, this period varies from one type of insurance policy to another.

Q. Why do I need to insurance policy renewal?

The insurance policies needs timely renewal to offer continued benefits to the policyholder. They are renewable within the grace period post the expiry date and may get lapse if the premium is not paid timely.

Also, the insurance company is entitled not to offer coverage for the period for which no premium is received.

Q. How many claims can I file under my insurance policy?

You are allowed to make a certain number of claims only basis the type of insurance you have bought. Also under policies like health and motor you can get a bonus/discount in the next year for not filing claims under the policy in a year.

Q. What is a cashless facility related to an insurance policy?

Cashless facility is available with certain types of insurance policies like health and motor insurance. Under this facility, the insurance companies pay the expenses incurred by a policyholder directly to the hospitals or network garages.

Q. What are TPAs?

TPAs or third-party administrators are intermediaries between insurance companies, policyholders, and hospitals. A TPA helps policyholders settle his/her claim hassle-free by establishing communication between the policyholder, the treating hospital, and the insurer.

Q. What is NCB (No Claim Bonus)?

“No Claim Bonus” is a discount offered by the insurer on the policy renewal to encourage policyholders to stay healthy, and avoid claims. If the policyholder does not make any claim in the preceding policy year, the insurer offers the NCB benefit.

The policyholder also has the option to accumulate the NCB for a couple of years and this simply leads to lowering of the premium amount of the health policy. Some insurers also offer this bonus in the form of an increment of the basic sum insured. For every claim-free years, insurers increase the basic sum insured at a pre-defined percentage.

Q. What is endowment plan?

An endowment plan is a life insurance policy tailored to pay a guaranteed sum assured with bonuses after a pre-specified time (maturity) normally for 10 years, 15 years, or 20 years. The policyholder is also entitled to get accumulated bonuses accrued over time. In case of the death of the life insured, the total sum assured with accumulated bonuses is paid to the beneficiary/nominee, and the policy terminates.

Q. What is money-back policy?

A money-back policy is a saving plan with the added benefit of life protection. Under the plan, the policyholder gets an amount equivalent to a pre-defined percentage of sum assured at regular intervals as a survival benefit throughout the policy period. In case the policyholder dies during the policy term, the nominee gets the entire sum assured without deducting any amount paid earlier as survival benefits, and the policy terminates

Q. What will happen if I fail to pay premium on time?

If you fail to pay the premium on or before the scheduled date, you will be provided with the grace period, during which you need to pay all the pending premiums, else the policy lapses. All life insurers in India allow their policyholders to reinstate/revive their policies within a certain period after the policy has lapsed /expired subject to acceptance as per underwriting guidelines.

But you must know that insurers do not cover risks for the reinstatement period. Also, the insurer may charge you the late fine.

Q. Is the amount received on maturity eligible for tax exemption?

All insurance policies do not have the eligibility for tax exemption. You should go through the tax provisions under section 10 (10D) prior to buying a policy.

Q. Is the amount received as death benefit eligible for tax exemption?

Yes, the amount received as a death benefit is eligible for tax exemption under section 10(10D) of the Income Tax Act.

Q. How can I file a claim under the policy?

In case of the death of the life insured, you should send claim intimation to the concerned insurance company as early as possible. Thereafter, a fully filled and signed claim form obtained from the company’s office or downloaded from its website, with documents such as – death certificate, legal heir certificate if the applicant is not an assignee/nominee, policy document, post-mortem report, etc. should be sent to the claim settlement department of the company.

In case of maturity, the insurer will normally send you the intimation along with a discharge voucher at least 2-3 months prior to the date of maturity. You need to send the signed discharge voucher along with the policy bond in the original. According to a circular of IRDAI released in September 2015, the insurance companies shall not have to stress on discharge vouchers regarding the release of admitted claim amounts.

Sources:

https://www.policyholder.gov.in/uploads/CEDocuments/Insurance%20Awareness%20Survey%20Report.pdf

https://financialservices.gov.in/sites/default/files/Insurance%20Note.pdf

https://www.maxlifeinsurance.com/

https://www.icicilombard.com/