The concept of insurance is based on the concept of risk. We have a general tendency of avoiding risks in various aspects of our lives, this makes most of us risk-averse. Insurance helps in avoiding mishaps that may occur in our lives and reaffirms our well-being and that of our loved ones. Therefore, insurance is widely-accepted as an integral element of our society.
Essentially, insurance is a contract between the insured and the insurer and this contract is meant to cover risk. The party that protects itself from the risks is called the insured party and the party which provides the facilities to mitigate the risks is called the insurer.
For example, the Life Insurance Corporation (LIC) of India provides life insurance to the citizens of India, here LIC is the insurer and the citizens of India are insured of the financial risk of losing lives.
In order to avail the insurance, the insured party pays a certain amount of money to the insurer, this is termed as premium. According to the terms of the insurance, premium could either be paid as a single payment or periodical payments.
Many insurance firms allow clients to tailor their plans to meet their specific requirements as well. The most typical approach for a policyholder to change their plan is through riders.
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Life insurance is a means for insuring the insured’s life. In the case of life insurance, the insured pays the premium at predetermined intervals and the Insurance Company agrees to pay a stipulated fixed sum, referred to as the death benefit, to the Insured's lawful heirs in the case of the Insured's death.
An interesting feature of life insurance is the investment feature embedded in life insurance. Apart from the death benefit, most of the life insurance policies have cash value. Cash value is the portion of a life insurance that pays interest, can be withdrawn and can be used as collateral for borrowing.
Types of Life Insurance:
Term Life Insurance:
Term life insurance lasts for a set number of years before expiring. When one buys a term insurance, one gets to select the term. The most commonly used terms are 10, 20, and 30 years.
Whole Life Insurance:
As the name suggests, whole life insurance is a permanent life insurance which means that unlike a term insurance wherein the coverage expires at the end of the term, a whole life insurance never expires. Term life insurance is however, much cheaper than whole life insurance and is therefore, prefered more.
Universal Life Insurance:
The appealing feature of an universal life insurance is that unlike term life and whole life insurance, the premiums and death benefit can be adjusted in an universal life insurance without actually changing the policy.
Variable Life Insurance:
Variable life insurance provides the insured an opportunity to invest the cash value in the markets. This serves the purpose of a systematic investment plan for the insured.
Final Expense Insurance:
Final expense insurance is a one-of-a-kind insurance policy that pays for everything related to the death of the insured, including medical care, a funeral, and cremation and is more attractive for older people.
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Life Insurance Riders:
Accidental Death Benefit Rider: In the event that the insured's death is caused by an accident, the accidental death benefit rider offers additional life insurance coverage.
Waiver of Premium Rider: If the insured becomes handicapped and unable to work, the waiver of premium rider relieves the policyholder of paying premium payments.
Disability Income Rider: In the event that the policyholder is unable to work for many months or longer owing to a major sickness or accident, the disability income rider pays a monthly income.
Accelerated Death Benefit Rider: The accelerated death benefit rider allows the insured to take a share or all of the death benefit after being diagnosed with a terminal disease.
Long-term Care Rider: The long-term care rider is a type of accelerated death benefit that can be used to pay for care in a nursing facility, assisted living center, or at home.
Guaranteed Insurability Rider: A guaranteed insurability rider allows the policyholder to acquire further insurance at a later date without having to undergo a medical examination.
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In contrast to life insurance, where the element of risk is the death of a person, in the case of general insurance, the element of risk is the damage/ loss to an asset possessed by a person. General insurance is usually shorter in term and requires a lump-sum, one-time premium to be paid.
Different types of general insurance:
Fire insurance is an arrangement in which the insurer offers to compensate the insured for any financial damages incurred as a result of the destruction or harm of property or assets caused by fire within a specified time period.
Marine insurance protects cargo, freight, products, or vehicles used for transportation, whether by sea, land, or air, from delay, injury, or destruction. It is a very important type of insurance for businessmen since it insures the products for the whole period of the journey.
Motor Vehicle Insurance:
Motor vehicle insurance or automotive insurance is an agreement wherein the insurer protects the insured from any damage incurred to the vehicle or any other person in case of an accident.
Types of Motor Vehicle Insurance:
It is compulsory for vehicle owners to buy basic vehicle insurance in India as per the Motor Vehicles Act, 1988, in order to compensate any other people who might get injured in case of an accident.
The mandatory policy just covers the third party risk or the risk of damage to other people by the motor vehicle. Comprehensive motor vehicle insurance policies cover other essential factors including the damages caused to the vehicle due to accidents, theft of the vehicle, etc. as well. Most people, therefore, prefer to buy a comprehensive insurance policy for their vehicles
Apart from the general features of a comprehensive vehicle policy, a vehicle owner can opt certain additional riders/ add-ons.
For example, a nil depreciation cover can be opted to avoid depreciation during vehicle insurance claims and engine protection cover can be opted to protect the vehicle from any damage to its engine, etc.
Health insurance covers the medical expenses incurred for the treatment of injuries and diseases as per the terms and conditions of the policy.
Types of Health Insurance:
Mediclaim insurance compensates for the hospitalization expenses incurred due to illness or accidental stay and includes the nursing charges, surgery expenses, etc.
As suggested by the name, individual insurance plans serve the health needs of an individual and usually have a particular sum insured, upto which claims can be made.
Family floater plans provide health insurance for the whole family at reasonable premiums. The sum insured is equally divided amongst the family members under such a plan.
Unit Linked Plans or ULIPs are investment cum insurance plans. Similar to the life insurance policies, they are available and are attractive to potential investors in health insurance policies as well.
Since the health of the members of a particular organization is integral for the whole organization, a lot of the organizations provide health insurance to their employees and they do so using the group mediclaim insurance plans.
Apart from the plans mentioned above, there are senior citizen plans, critical illness plans and hospitalization cash benefit plans as well.
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Personal Accident Insurance:
The aim of personal insurance is to allow for the payment of a fixed sum in the event of death or injury as a result of an accident.
Burglary or Theft Insurance:
Burglary, kidnapping, and other types of theft are covered under the Theft Insurance Contract.
Insurance is a protection required by all the people for mental, emotional and physical well-being in case of a mishap. Life insurance is a must for all the citizens of a country and the various types of general insurance should be opted for as per the requirements of a person.
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Life insurance holds immense value for the near and dear people of the person who is insured, it provides the much needed financial support to the insured’s family. As a result, life insurance provides the insured person with a sense of relief and psychological support.
Even so, only 3.30% of India’s population is covered under a life insurance policy due to poverty and financial illiteracy prevalent in India. On the contrary, more than half of the American citizens have a life insurance policy.
If India is to grow at the exceedingly high pace as anticipated by a lot of the economists, the number of people opting for insurance in general and life insurance in particular would increase significantly.