Insurance: Types & Tax Benefits

What is Insurance?

An insurance provides coverage for the specific losses, injury, illness, or death in the form of financial compensation. To get this coverage, you need to pay a specified sum of money to the insurer which is called an insurance premium.

The insurer and the insured sign a valid insurance contract, which is termed the insurance policy. The insurance policy includes a detailed description of the terms and conditions in which either the insured person or the nominees will be paid out the insurance sum as a claim for the damages. 

Types of Insurances

There are different types of insurances as mentioned below:

1. Life Insurance

Life insurance is a contract providing financial coverage in the event of the death of the policyholder. Some life insurance plans also provide financial benefits upon retirement or over a specified time span. Therefore, life insurance lets one protect the financial stability of his/her family even in their absence. These policies provide death benefits & claims to the nominees which can act as financial support after the demise of the policyholder. Life insurance can be divided into different categories according to what it covers:

Term Life Insurance:

Term Life Insurance offers the insured's family members financial protection on the insured's untimely death during the policy period. If the insured survives the duration of the policy, he/she will not be given any benefits. The insured needs to pay the premiums in due time to ensure this coverage at the time of death.

Endowment Plan:

An endowment plan is a combo plan offering insurance coverage and an opportunity to save as well for a long term. These plans are designed to make payouts after the maturity of the policy or on the demise of policyholders.

Compared to a term plan, it is a more costly plan, since these policies offer maturity value along with incentives.

Unit-Linked Insurance Plan (ULIP):

A unit-linked insurance plan is a combination of insurance and investment. The premium paid for ULIP is partially used for providing insurance cover, and the rest is used to make investments in chosen funds. Depending on an investor’s risk tolerance, he can invest in various funds provided by the insurance provider. The insurance company then invests premiums in equities, debt or money market instruments as per the chosen investment plan.

Money-Back Life Insurance:

A money-back plan is a special form of life insurance policy, in which a portion of the sum assured is paid to the insured at periodic intervals.

These plans are also entitled to bonuses from the insurer based on the plan’s performance.  In case of death of the insured during the policy, the entire sum assured is paid to the nominee without taking into account the earlier paid periodic survival benefits.

Annuity Plan:

An annuity plan ensures regular monthly payouts on a lump sum investment made by the individual. What actually happens is that upon purchasing an annuity scheme, the annuity provider invests your money in different asset classes and repays you every month along with returns earned from the annuity amount. 

Child Plan:

Child insurance plan is the perfect plan for those looking to save money for their child’s future financial needs, such as higher education. It is a combination plan offering life insurance as well as savings plan. 

Also, there may be a child strategy in ULIPs, where a portion is invested and the remainder is used for providing cover. 

2. General Insurance

Insurance may be divided broadly into 3 types: life, health and general. General insurance is also a valuable insurance other than our life and health. The general insurance provides coverage against injury, loss and theft of your valuables. The general insurance premium rates and coverage depends upon the form and scope of the policy. Usually a general insurance policy has a term of several years.

Motor Plan:

Motor insurance provides cover on the vehicles in events of accident, damage, theft, vandalism, etc. This type of insurance comes in two forms – comprehensive and third-party. A robust motor insurance policy offers a 360-degree protection against any harm done to your vehicle. It also gives you the rider a personal injury cover and third-party liability coverage.

Health Insurance:

With medical expenses rising every year, it becomes very difficult to be prepared with a large corpus especially to meet your medical emergency needs. 

You need a health insurance policy to meet critical health conditions requiring high medical expenses for hospitalization & treatments. The health policy provides cover in case of these situations so as to protect the policyholders from huge financial obligations. A health insurance policy has 2 different categories – indemnity plans and fixed benefit plans. 

Home Insurance:

Home and household insurance provides cover for your house in the events of damage, theft, terrorism or natural calmities,etc. A home insurance policy will also cover conditions which are normal and man-made. The protection for the content & material things in the house will depend on the form of policy you are buying. 

Travel Insurance:

Travel insurance, which also covers your trips abroad, is another popular type of general insurance. You can purchase a travel insurance policy to cover the losses or theft of your possessions as well as any documents during travel. There are also travel insurance policies which cover flight delays and medical emergencies. Travel insurance can be taken for both personal and business trips.

What is an insurance claim?

An insurance claim is a formal request to an insurance provider that demands a payout based on the insurance policy conditions. The insurance provider checks the claim for its validity and then, if approved, pays out to the insured or asking party (on behalf of the insured).

Benefits of buying insurance online

  1. Customer Service

Doing an online purchase is a big challenge for the non-tech savvy individuals. The insurance websites provide the customers' online chat facility to request clarification on any queries. You can also telephonically speak to their customer service executives about any question that can be answered over the phone. As individuals in India, the customer may also seek a face-to-face meeting.

2. Convenience

The advantage of online transactions is that you have enough time to assess every detail and choose the appropriate policy as per your requirements.

Furthermore, because the customers fill in the personal data, there is less risk of misinterpreting evidence.

3. Documentation Process

Online insurance provides trouble-free reporting and limited paperwork. This ensures that you no longer run around with the ID photocopy or address proof or any other paperwork required for buying your policy. The policy premium is paid instantly, as it is handled electronically. 

4. Price Comparison

When purchasing insurance online, one may prefer to compare insurers' premiums and thereby make it much simpler to choose the right plan.

5. Lower Costs

Buying online reduces various costs associated with paperwork, & intermediaries involved in the whole process. 

Tax Benefits on buying Insurance

There are income tax benefits that you can avail on buying Insurance plans.

1. For individuals below 60, premiums paid for health insurance of up to Rs.25,000 for self & family and up to Rs.25,000 for parents are eligible for claiming tax deductions under Section 80D.

For individuals above 60 & parents above 60, the limit for deductions increases to Rs.50,000 for each.

2. Under Section 80C, premiums paid for life insurance are eligible for claiming tax deductions of up to 1.5 lakh in a financial year.

More Information:

What is Arogya Sanjeevani Policy: Health Benefits, Eligibility, All Details
Importance of Health Insurance
Corona Health Rakshak & Corona Kavach Policy: Eligibility, Tenure, Coverage & Points of Difference
Tax Saving Options Under Section 80C
 

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