[ecis2016.org] In this article we highlight the different types of insurance that exist and that one can avail of
What is insurance
There is an element of uncertainty revolving around us, which brings along risks with it. While much can’t be done of the uncertainties, the risks can be attended to by way of insurance. Let us understand what insurance is.
Insurance is a method through which a person or company protects oneself or itself from financial loss. The company that provides the insurance, compensates for losses that are insured like life, vehicle, health, education, home, etc. So, anybody/ company that provides insurance is known as the insurance company, insurer, underwriter or the insurance carrier. The individual who opts for the insurance is known as the insured party. To be insured, a person has to pay a premium on a timely basis so that in an event of a loss or a contingency, an insurance company pays for the loss. While evaluating the insurance that is most suited for you, do a thorough research and opt for only reputed insurance policy companies, as a lot of money is at stake.
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Insurance: The various components
Premium: The premium for an insurance policy is calculated, based on the eligibility of the person and the amount for which he is covered. For an insurance policy, a premium has to be paid at a regular interval that can range from monthly, quarterly, half-yearly or yearly. For example, in case of health insurance, a person who is suffering from ailments may have to pay a larger premium, as compared to a healthy person.
Policy limit: As the name suggests, this is the maximum limit of money that the insurance policy will pay, as per the losses covered in the insurance policy. This amount is arrived at, based on many factors including the policy duration, extent of damage, etc. So, the higher the premium that one pays, higher will be the extent of policy covered.
Deductibles: These are the small amount that the policyholder has to pay out of his pocket, before the insurance company sets in to settle the claim. The deductibles are based on the type of policy chosen by the policyholder. Policies with lower deductibles are expensive, as there are many claims and those with higher deductibles are less expensive, as there are fewer claims owing to high out-of-pocket expense.
- The biggest benefit of insurance is that you will be covered against uncertainties in life.
- Also, with the insurance company taking care of the expenses owing to the insured money, you will be less troubled financially, at the time of crisis.
- There are many insurance plans that double up as savings plans and help you with your investments too.
Insurance: Tax benefits
In addition to providing the compensation in the form of insurance, availing of an insurance policy also has attached with it income tax exemptions, which can be availed of while filing the IT returns. Under Section 80C, one can claim life insurance premium of upto Rs 1.5 lakhs as tax savings. Similarly, under Section 80D, medical insurance premium that is paid for you, your family and your parents are tax deductible. Under Section 10 (10D), insurance benefits that are received by you or the nominee are tax exempted.
Insurance: How does it work?
While all are free to seek insurance, providing insurance is completely the choice of the insurance company. Generally, insurance companies avoid providing insurance to applicants who are categorised as high-risk.
On choosing the insurance one wants to opt for, a legal contract is signed between the insurance company and the person who opted for it. This legal document is known as the insurance policy.
Note that an insurance company will only pay for things that are mentioned in the insurance policy. The insurance policy has terms and conditions mentioned, according to which the insurance company will pay the insurance amount to the insured people or the nominees. Thus, it is very crucial to read an insurance policy carefully before you opt for buying it, as you will know exactly what things are covered under the policy.
People have to pay a small premium against the insurance they seek, even in terms of big coverage, because only a few people end up redeeming their insurance. While claiming for an insurance, the policy holder should support his claim with all the required documents for the insurance company to assess the same and revert with the claim amount to be granted.
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Insurance: The different types
There are different types of insurance available in India, which are mentioned below.
Life insurance: Life insurance is an insurance offered on one’s life. Life insurance is very important, especially for the earning member of the family, so that their dependents do not suffer financially, in the event of the demise of the person. On paying the premium in equal intervals of time, under life insurance policy, the policy holder’s family is monetarily compensated if the policy holder dies during the policy’s term.
Health insurance: Another very important insurance to subscribe for is health insurance, which takes care of the medical costs involved in treatments of diseases. There are various types of health insurance that are available, which cover different ailments across price bands. The premium on the health insurance that you pay to the insurance company, covers costs related to hospitalisation, treatments and medication.
Home insurance: While a lot of thinking is put behind investing in a home, where most people invest their entire life savings, it is also important to buy home insurance which covers losses that are caused to a home. These may be incidents like fire, natural calamities, lightning, earthquakes, etc. It is advisable to check the various options available in home insurance and opt for one as this is one big investment on which the entire family is dependent on.
Vehicle/ car insurance: This is also a very important insurance and mandatory, as in case of an accident one may have to receive or pay money to another car/vehicle owner. Without vehicle insurance it is illegal to drive your vehicle in India and globally too. Vehicle policy covers accidents and damages caused by nature. A third party insurance covers instances where you have to pay another vehicle owner compensation towards damages, in case of an accident caused because of you.
Education insurance: As the name suggests, education insurance takes care of the education of a child as it acts as a money saving policy. By investing in education insurance, you will be able to access and address large money requirements needed to be spent towards a child’s higher education. While the person investing the money may be the education insurance policy holder, the child on whom the premium is being paid will be the recipient of the education insurance investments going forwards.
What is meant by the waiting period under insurance policies?
Waiting period is the time frame that the insurance policy holder must wait, before the insurance policy coverage becomes effective. This means that any claim filed before the completion of the waiting period or beginning of insurance coverage won’t be honored. Note that the waiting period differs from one policy to another.
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