types of insurance policies in India

What are types of Insurance Policies in India?

Risk is omnipresent. Whether you’re behind the wheel, exploring a foreign land, or lounging at home, an emergency can strike at any moment. This highlights the critical role of an insurance policy. An insurance policy is a contract between an insurance company and an individual (the policyholder), designed to shield the policyholder from financial losses caused by unexpected events. Insurance primarily comes in two forms: life insurance and general insurance. Continue reading to learn more.

Types of Insurance Policy

Insurance is broadly categorized into two types:

  • Life Insurance: Life insurance is an agreement that provides financial compensation in case of death or disability. Some life insurance policies also offer financial benefits after retirement or a specified period. This type of insurance ensures your family’s financial stability even when you are no longer around. You can either pay a lump sum when purchasing the policy or make regular payments known as premiums. In return, the insurer guarantees to pay a predetermined amount to your family in the event of death, disability, or at a specified time.
    • Life insurance policies come in various types, including:
      • Term Insurance
      • Whole Life Insurance
      • Guaranteed Life Insurance
      • Unit-linked Insurance Plan
      • Retirement Plans
      • Child Plans
      • Endowment Policy
  • General Insurance: General insurance is an agreement that provides financial compensation for losses other than death. It covers everything except life. This type of insurance protects you from financial losses related to your house, car, bike, health, travel, and more. The insurance company commits to paying a specified amount to cover damages to your vehicle, medical expenses, losses from theft or fire, and financial issues during travel. In essence, general insurance offers financial protection for all your assets against loss, damage, theft, and other liabilities.
    • The various types of general insurance policies include:
      • Health Insurance
      • Motor Insurance
      • Travel Insurance
      • Home Insurance
      • Fire Insurance

Types Of Life Insurance Plans Available in India

The different types of life insurance policies are listed below:

  1. Term Insurance: This is the simplest type of insurance, offering a lump-sum payment to your family in the event of your death. If you survive the term, no money is paid to you or your family. However, with the Return of Premium Term Insurance plan, you receive the total premiums paid back at the end of the policy term.
  2. Whole Life Insurance: As the name implies, this plan offers coverage for a lifetime, typically until you reach 99 or 100 years old. In the event of your death, your family receives a specified sum of money. Besides death benefits, this plan also provides a bonus and the option to avail of a loan facility.
  3. Endowment Policy: An endowment policy, like a term policy, is valid for a specific period. If you pass away during this period, a lump-sum amount is paid to your family. However, unlike a term plan, an endowment policy provides you with maturity proceeds at the end of the term.
  4. Money-back Policy: You will receive a certain percentage of the sum assured periodically throughout the term as a survival benefit. At the end of the term, you will get the remaining amount as maturity proceeds. If you pass away during the policy period, your family will receive the entire sum assured, regardless of any survival benefit payments made.
  5. Unit-linked Insurance Plans (ULIPs): ULIPs offer both insurance and investment benefits. Part of your premium is allocated to your insurance coverage, while the remainder is invested in debt and equity. This ensures that in the event of your untimely death, a lump-sum amount will be paid to your family.
  6. Child Plan: This guarantees the financial security of your child. In the event of your death during the policy term, your child will receive a lump-sum amount. The insurer will cover the premium amounts after your death, and your child will continue to receive periodic sums of money.
  7. Pension Plans: Pension plans stand out as excellent tools for building your retirement fund. You can receive a regular pension amount post-retirement, and in the event of your demise, your family or nominated individuals can claim the sum assured.

Types of General Insurance

The following are the different types of General Insurance policies:

  • Health Insurance: This general insurance type caters to medical expenses by covering or reimbursing the costs incurred for injury or illness treatment. A health insurance plan usually includes coverage for pre- and post-hospitalization, day care procedures, medications, surgical expenses, health check-ups, and other medical needs.
    • You can enhance the benefits of your health insurance plan by choosing additional benefits such as:
      • Maternity Cover: This add-on benefit covers the costs associated with childbirth, including pre-delivery check-ups, hospitalization during delivery, and postnatal care.
      • Pre-existing Diseases Cover: This cover includes coverage for pre-existing conditions that you had before purchasing the health insurance policy.
      • Consumables Cover: This add-on covers consumables such as syringes, cotton, PPE kits, bandages, gloves, and other items.
    • Your health insurance can also contribute to tax savings. The premium paid for your health insurance plan allows you to save up to Rs. 75,000 in taxes.
      • Motor Insurance: Motor insurance is akin to health insurance for your vehicles, providing general insurance coverage for protection against losses due to accidents, damage, theft, fire, or natural disasters. Commercial vehicles can also be insured under motor insurance. In India, possessing at least a third-party insurance policy is a legal requirement. There are two main types of motor insurance: car and bike insurance, which are further categorized into Comprehensive, Standalone Own-damage, and Third-party motor insurance policies.
      • Travel Insurance: Travel insurance covers and compensates for any financial liabilities resulting from medical and non-medical emergencies during your travels, whether abroad or within the country. This general insurance plan usually includes coverage for lost baggage, emergency medical expenses, passport loss, hijacking, flight delays, accidental death, and more.
        Different types of Travel Insurance are available.
        1. Domestic Travel Insurance
        2. Student Travel Insurance
        3. Family Travel Insurance
        4. Single-trip Travel Insurance
        5. Multi-trip travel insurance
  • Home Insurance: Home insurance covers damage to your home caused by natural disasters, man-made incidents, or other risks. It includes protection against fire, burglary, theft, flood, earthquakes, and sabotage. This insurance not only safeguards your home but also covers the valuables inside. Common types of home insurance include Standard Fire and Special Perils policies, Public Liability coverage, Home Structure insurance, and more.
  • Fire Insurance: Fire insurance compensates for damages incurred by your property or goods due to fire. It covers the costs of replacing, reconstructing, or repairing the insured property and surrounding structures. It also includes damages to third-party property caused by fire. Additionally, it covers expenses for those whose livelihoods have been impacted by a fire outbreak.

What is not Included in Insurance Policies?

Certain situations may not be covered by your policy. These are called exclusions.

  • Life: If death happens because of:
    • War or Terrorism
    • Suicide or Self-inflicted Injuries
    • Gross Negligence or Carelessness
    • Alcohol or Drug Abuse
  • Car: 
    • The policy is not active when the damage occurs.
    • Personal belongings stored in the car are lost.
    • A car that is not insured incurs damage.
    • Driving without a license results in damage.
    • Driving under the influence of alcohol or drugs causes damage. Damage occurs due to wars, mutiny, or nuclear risks.
  • Bike: 
    • Damage arises from war, mutiny, or nuclear risk.
    • Regular use and natural aging
    • If your two-wheeler sustains damage at the same time as a tyre or tube puncture, you will receive compensation for 50% of the repair or replacement cost.
    • Mechanical or Electrical Breakdown
    • Any loss or damage occurring outside India
  • Health:
    • Hospitalization resulting from war or related activities
    • A medical condition caused by the abuse of intoxicants or hallucinogenic substances
    • Any medical condition that existed before purchasing the policy during the waiting period
    • Non-allopathic therapies such as acupuncture, yoga, and nature therapy, and diagnostic charges if the reports do not confirm the existence of the covered disease
    • Self-inflicted injuries
  • Travel:
    • Traveling against the physician’s advice
    • Baggage delay lasting fewer than 24 hours
    • Psychological illness or injuries self-inflicted during your trip
    • International locations experiencing war or civil unrest.
    • Engaging in hazardous sports such as bungee jumping, parachuting, etc
  • Home:
    • Deliberate destruction of property.
    • Damages caused by war.
    • The property’s loss of money was kept inside.
    • The property incurs loss when it remains unoccupied for a certain period.
  • Fire: The property suffers loss or damage due to:
    • Mechanical or Electrical Breakdowns
    • Nuclear Perils
    • War or related activities
    • Pollution or contamination occurs.