Life Insurance
Life insurance is financial product that provides the policy holder financial protection in the event of an unfortunate death. Anyone who is working and has dependents like children, spouse, retired parents etc needs life insurance because an untimely death will deprive the family of income and cause financial distress. If you have debt e.g. home loan, car loan etc, then life insurance becomes an even more critical financial need.
How does life insurance plan work?
A life insurance policy will provide your dependents financial protection over a certain period of time (the policy term) in the event of an unfortunate death. The amount of financial protection is known as sum assured or cover; sum assured is the amount your dependents will get in the event of an unfortunate death during the policy term.
How much cover should you buy?
It depends on your income and the needs of your family. The income from your life insurance cover should be able to meet the needs of your dependents for a long period of time or at least till the time, when your dependents themselves become financially independent e.g. your children start working. Additionally, if you have debt e.g. personal loan, home loan etc your cover should be large enough to repay those loans in the event of an unfortunate death. A common rule of thumb is that your life insurance sum assured (cover) should be at least 10 to 12 times of your annual income.
What is the cost of a life insurance policy?
The cost of an insurance policy is known as premium. The insurance premium is payable annual (or other intervals like monthly, quarterly etc) throughout the policy term or a shorter period, as specified in the policy document. There are also single premium policies, where the entire premium is paid up front. Since the entire premium is up front (lump sum), the insurer will provide you a discount on the premium. The insurance premium will depend on a number of factors, the most important of which are the sum assured, your age, pre-existing medical conditions (e.g. diabetes, hypertension etc), lifestyle habits (e.g. smoking), additional riders e.g. accident, critical illness etc.
Different types of life insurance plans:
There are broadly three types of life insurance plans:-
Term life insurance:Term life insurance provides life cover to the policy holder over the policy term. Term plans are pure protection plans; there are no survival benefits in term plans. For example, if you bought an Rs 1 crore term plan for a policy term of 20 years, your dependents will get the sum assured i.e. Rs 1 crore in the event of an unfortunate death. However, you will not get any maturity benefits, if you survive the policy term. The premiums of term plans are much lower than premiums of other types of life insurance plans.
Traditional life insurance plans:The main difference between traditional life insurance plan and term plan is survival benefits. In a traditional life insurance plan, you will get the sum assured if you survive the policy term. In addition to the sum assured purchased by you, you will also get guaranteed additions to the sum assured every year, after the completion of a specified number of policy years. You will also get reversionary bonuses at the discretion of the insurer. Traditional life insurance plans are insurance cum investment plans, where you get the life insurance cover in the event of an unfortunate death and also returns on your investment (premiums) at the end of the policy term, if you survive the policy term.
Unit Linked Insurance Plans:Unit linked insurance plans (ULIPs) are insurance cum investment plans. The main difference between ULIPs and traditional life insurance plans is that ULIPs are market linked investments. In ULIPs a portion of your premium is used to provide you life insurance cover, while a portion of your premium is invested in market securities like stocks, bonds etc. You can think of ULIP as a combined Term Life Insurance Plan and Mutual Fund. Since ULIPs are subject to market risks, you can even make a loss in ULIP. However, ULIPs also have the potential of giving much higher returns than traditional life insurance plans. There are different types of ULIPs with different risk profiles. Your insurance advisors can help you select a plan according to your risk appetite.
Health Insurance
Cost of quality healthcare in India has been sky-rocketing for the past decade or so. Hospitalization for a serious health condition can set you back by Rs 5 to 10 lakhs, depending on the severity of the condition and treatment options. Health insurance provides insurance cover for comprehensive hospitalization expenses related to accident and illness. It typically covers the following expenses:-
- Room, boarding expenses of the hospital bed
- Fees charged by physician, surgeon, anesthetist and other specialists
- Cost of medical procedures e.g. surgery, dialysis etc.
- Cost of medicines, medical equipments, consumables etc.
- Tests and procedures like X Ray, ECG, MRI, anesthesia etc
Some health insurance policies may also cover pre hospitalization medical expenses e.g. tests, diagnosis etc, up to the limit of your health insurance cover (sum insured). If your health insurance sum insured is Rs 5 lakhs and your hospital bill is Rs 6 lakhs, the health insurance company will pay Rs 5 lakhs and you will have to pay Rs 1 lakh.
Health insurance claims can be cashless or on a reimbursed basis. In a cashless claim, you do not have pay from your pocket. Your medical bills are settled directly by the insurance company to the hospital. In reimbursement, you have to settle the hospital bills and claim reimbursement from the insurer after submitting the bills. Obviously, cashless claims are much more convenient but for cashless claims you have to go to a hospital which is in the hospital network of the insurance company.
Your health insurance premium will depend on the sum insured (amount of health insurance cover), your age / age of your family members (in case of a family floater plan), pre-existing medical conditions, the policy features you opt for e.g. what illnesses / procedures are covered, exclusions, type of room you are entitled to (single, sharing basis, deluxe etc), co-pay (what percentage of the expenses e.g. 20% you will have to pay in the event of an hospitalization) etc. There many points to consider when buying health insurance or Mediclaim. Your insurance advisor will be able to recommend the right health insurance product for you, based on your needs.
General Insurance
General Insurance in India: An Overview
General insurance in India encompasses a wide range of policies designed to protect individuals and businesses from financial losses due to unforeseen events. Unlike life insurance, general insurance policies provide coverage for non-life assets, offering protection against risks like accidents, natural disasters, theft, and liability.
Types of General Insurance
1. Health Insurance:
Covers medical expenses incurred due to illnesses, surgeries, and hospitalizations. It includes individual, family floater, and critical illness plans.
2. Motor Insurance:
Mandatory for all vehicles in India, motor insurance includes two main types:
Third-Party Insurance:
Covers legal liabilities arising from damages or injuries caused to a third party.
Comprehensive Insurance:
Provides broader coverage, including third-party liabilities and own vehicle damage due to accidents, theft, fire, and natural calamities.
3. Home Insurance:
Protects residential properties and their contents against risks such as fire, theft, natural disasters, and other damages.
4. Travel Insurance:
Offers coverage for unforeseen incidents during travel, including trip cancellations, medical emergencies, lost baggage, and flight delays.
5. Fire Insurance:
Provides protection against losses or damages caused by fire, lightning, explosion, and other allied perils. It's essential for businesses and property owners.
6. Marine Insurance:
Covers loss or damage to ships, cargo, and terminals during transit. It includes hull insurance for the vessel and cargo insurance for the goods transported.
7. Liability Insurance:
Protects individuals and businesses from legal liabilities arising from injuries or damages to third parties. It includes professional indemnity, public liability, and product liability insurance.
8. Commercial Insurance:
Tailored for businesses, it covers various risks such as property damage, business interruption, and liability. Key types include shopkeeper's policy, office package policy, and industrial all-risk insurance.
Benefits of General Insurance
1. Financial Security:
Provides financial compensation for losses, ensuring that individuals and businesses can recover from unexpected events without severe financial strain.
2. Risk Mitigation:
Helps manage and transfer risk, reducing the potential financial impact of accidents, disasters, and other incidents.
3. Peace of Mind:
Offers reassurance that one is protected against a wide array of risks, allowing for greater focus on personal and professional pursuits.
4. Legal Compliance:
Certain types of insurance, like motor and liability insurance, are legally mandated, ensuring compliance with regulatory requirements.
Leading General Insurance Providers
India's general insurance market is served by both public and private sector companies, offering a diverse range of products to meet varying needs. Prominent players include:
New India Assurance
United India Insurance
ICICI Lombard General Insurance
Bajaj Allianz General Insurance
HDFC ERGO General Insurance
Conclusion
General insurance in India plays a crucial role in safeguarding against various risks, providing financial stability and peace of mind. With a variety of policies tailored to different needs, general insurance helps individuals and businesses manage uncertainties effectively. It is advisable to assess specific requirements, compare different plans, and understand the terms and conditions thoroughly before selecting an insurance policy. Adequate general insurance coverage is essential for financial protection and long-term security.