What are the different types of insurance?

Insurance is a key requirement for people to protect themselves against different risks that may occur. There are different insurance policies that provide protection against different policies.

Broadly, insurance can be divided into two types: life and non life insurance. Life insurance covers the risk of loss of life. Non-life insurance, also known as general insurance covers the risk of other losses.

Life insurance:

Life insurance provides financial security and safety to the insured and the insured’s family. There are three types of life insurance plans which you can opt for depending on the type of protection you need.

  • Endowment or money back policy where you receive a fixed amount on maturity or death including any bonus. This is a non linked plan which means the value of the investments are not linked to the stock market.
  • Unit Linked Insurance Plan is a plan which is linked to the market. In this plan, a part of the premium is used to cover cost of insurance and a part is invested. The investments are made in different funds that invest in instruments based on their risk policies. A ULIP plan pays the higher of the sum assured or the fund value on maturity of the policy.
  • Term plan which is a pure insurance that covers the risk of death of the policyholder. This policy pays out the decided sum assured on death of the policyholder.

Investment in life insurance gets a deduction under Section 80C of the Income Tax Act up to Rs. 1,50,000.

General insurance:

General insurance are policies that cover risks, losses and damage items except the life of a policyholder. General insurance policies typically earn some form of bonus for not making a claim in the year. This is called a No Claim Bonus (NCB). Some of these type of insurance policies are:

  • Health insurance covers the costs incurred during hospitalization. It also covers other expenses such as ambulance charges, pre-hospitalization expenses, post hospitalization expenses etc. These charges are generally specified in the insurance policy.
  • Travel insurance covers any losses or damages that may occur during travel, both internationally and domestic travel. There are three types of travel insurance i.e individual travel insurance for solo travellers, family travel insurance for families travelling together and student travel insurance for students who are studying abroad.
  • Motor insurance covers two wheeler and four wheeler vehicles from any losses or damages due to accidents, natural disasters, riots, terrorism, civil war, war etc. or third party liability
  • Marine insurance covers any losses to goods that are on sea due to natural disasters or due to any problems on ship.
  • Cyber insurance covers any losses due to breach of cyber security including any losses of monetary nature that may occur due to such breaches.
  • Home insurance covers a home against losses due to burglary and also damage due to natural disasters such as storms, lightning, earthquakes etc.

Unlike a life insurance policy, a general insurance policy has to be renewed every year. In case it is not renewed, the policy lapses along with any bonuses earned under the policy.

Only a health insurance policy gets a tax deduction under Section 80D of the Income Tax Act. For insurance taken for self, spouse and dependent children, the limit is Rs. 30,000 and for senior citizens, the limit is Rs. 50,000.

It is important for a person to invest in both life and general insurance to provide thorough protection against risks.

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