Life has always been uncertain and it is impossible for us to assert what the next moment holds in reserve for us. This uncertainty regarding the future is the sole reason why countless people opt for distinct types of insurance every year.
Insurance is the way to manage your financial risks. An insurance policy covers the policyholder against financial loss cause due to any specific contingencies. Though there are many types of insurance policies, it is important to know about some basic policies that one must have. There are boradly 2 categories of insurance Life Insurance & General Insurance.
Life Insurance
Life Insurance is a contract that offers financial compensation in case of death or disability. Life insurance helps you in securing your family’s financial security in your absence. Almost every citizen is covered under life insurance. Life insurance comes in variety of forms. The most prevalent types of life insurance policies offered in India are Term Life Plans, Unit Linked Insurance Plans, Pension Plans, Money Back Plans etc.
Though many insurance plans are available, the Term Life Plan is the most suitable plan for people who are young & earning. It is the most basic type of insurance, it covers you for a specific period by paying a small sum annually. Your family gets a large lump sum amount compared to the premium paid, in the case of your death.
Let’s understand with the help of an example.
Suppose your neighbor suddenly passes away in an accident, leaving behind a wife, two kids and elderly parent. He had minimal savings, barely enough to cover a few months’ expenses. If he had taken a Rs. 20000 Life Insurance, then his family could have Rs. 1 crore in hand, which might help family to sustain living expenses in future.
General Insurance
General insurance is a contract that offers financial compensation on any loss other than death. It insures everything apart from life. The insurance company promises you to pay sum assured to cover damages to your vehicle, medical treatment, to cure health problems or loss due to theft or fire. Several types of General Insurance are:
Health Insurance
Health insurance provides reimbursement of various medical expenses. It is a type of insurance policy that covers the cost of your medical treatment. Several types of health insurance are: Individual health insurance, family floater insurance, critical illness coverage, senior citizen health insurance and group health insurance.
Let’s take an example
Suppose you were admitted to ICU for a week. You have to pay Rs.5 lakh for the hospital charges including treatment. On the other hand, if you have taken health insurance, you might have to pay nothing from your pocket. This would have saved you from spending on the bill from your pocket or withdrawing from investments that were marked for other more important long term goals like retirement, child education etc.
Automobile Insurance
In India it is mandatory for all vehicle owners to have third party liability cover for all their vehicles. It provides financial compensation by insurer for any loss to any third party in event of any accident, crash or damage. Comprehensive Insurance is more prevalent as it covers third party liability as well as own damage liability. It includes benefits of third party insurance, as well covers any damage to our own vehicle & driver.
Let’s understand with a scenario:
You are driving & your car gets out of control & hits a pedestrian crossing the road. You damage your own car as well as impose substantial injuries to the pedestrian, who is a also a person of repute. Unfortunately your vehicle is not insured or insurance has expired a few days back.
Now the claim occurs as follows:
1) Third party claim: 50 lakh
2) Own damage: 3 lakh
You would have saved yourself from paying this 53 lakh, if you had spent let’s say Rs. 12000, on car insurance every year. Then insurance company would have paid for all these damages & claims.
Fire Insurance
Fire insurance covers losses or damages caused by fire to your property, building, equipment or inventory. You must disclose all the relevant information to your insurance company while insuring the property. You will receive the claim only if you are the owner of your property.
Now the question might arise in your mind why you need insurance?
When you buy insurance, you purchase protection against unexpected financial losses. Insurance renders a feeling of safety, providing you with financial stability. The emotional and psychological loss can never be compensated, but at least the financial loss can be compensated with insurance.I hope you have understood the importance of insurance and the types of insurance you must have, if you are looking to protect your family and yourself from financial risks.
Very informative