Last updated: July 1st, 2018
What is Insurance?
I know most of us already know what insurance is, and probably already have insurance policies. However, just to be sure that we are on a common ground, I will briefly touch upon the subject.
Insurance is a risk cover. It is a fallback source of funds in case of any exigency. An insurance policy is a plan wherein you have to pay a certain amount to get yourself covered financially against the risk. Usually the cover is much higher than what you have to pay. The most common types of insurances are Life, Health and Motor Insurances.
The amount you have to pay to get yourself covered is called the premium. The premium varies across different policies depending on the amount of risk. The greater the risk, the higher is the premium. So a 50-year-old person buying a Life Insurance policy will have to pay more premium than a 20-year-old, since the probability of a 50-year-old dying early is greater.
Let us have a look at the most common types of insurances.
A life insurance or life cover seeks to financially secure the dependents of the insured person. Having a life cover is a must for anyone who earns an income and has dependents. If something unfortunate happens to the person (bluntly put, if the person dies), the cover will provide a source of funds to the dependents. In the absence of a life cover, the dependents would have been left without any money. This is because the person’s income was their only source of sustenance.
Generally, term insurances are better than traditional insurances. I will discuss about the two in later posts.Life insurance policies can further be subdivided into traditional products (insurance cum investment policies) and pure risk cover (term plans). Traditional insurances offer a moderate return on the premium paid along with a life cover. Term insurances offer a much higher life cover for a lower premium. However, if the insured person outlives the policy, there would be no returns.
Life Insurance premiums are exempt from income tax under section 80C upto a limit of Rs 150000/-. This is the combined limit for 80C.
A health insurance, commonly known as mediclaim, aims to cover the medical expenses of the insured person. As cost of medical treatments rise and instances of lifestyle related diseases increase, a health cover is of utmost importance to everyone. The cover is subject to certain conditions. Usually only hospitalization expenses are covered, where the period of hospitalization is 24 hours or more. Certain day care procedures are also covered.
Reputed organizations usually cover their employees under a group mediclaim policy. For others, buying a health cover should be a priority.
Health insurance premiums are exempt from income tax under section 80D upto a limit of Rs 25000/- (Rs 30000/- for senior citizens).
If you own a motor vehicle (car, bike, or any other type of motor vehicle), having a motor insurance is a legal requirement. You cannot drive a vehicle without having one. Motor insurances can be Comprehensive or Third Party. Third party motor insurances cover only claims arising out of third-party casualties due to accidents, while Comprehensive insurances cover damage to your own vehicle also. It is mandatory for all vehicles to have at least a third-party cover.
So that was a brief overview of the most common types of insurances. There are many other types of insurances which are less popular but can be extremely useful depending on the circumstances of a person.
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