What is Insurance?

Risks and losses are insured, or unforeseen events are covered by insurance. If the policyholder suffers an unexpected loss to an insured object or person, the insurer will compensate the policyholder for the loss/damage by paying the benefit amount. In exchange for paying premiums on a regular basis, you can buy a suitable insurance plan and get the required coverage. Let’s learn more about what insurance is and how it works.

What is Insurance Policy?

A life insurance policy is a legal contract signed by the policyholder for the purpose of receiving the requested insurance coverage in exchange for paying the premiums for the specified policy period. An insurance policy contains all the details about coverage, inclusions, and exclusions. The policy also outlines the conditions under which the nominee may receive the insurance benefit amount during the policy term.

A policyholder transfers his or her risk to the insurer. Insurers promise to pay benefit amounts in case of an eventuality and help the policyholder or nominee recover any losses incurred due to said eventuality.

To obtain a faster and hassle-free claim settlement, the nominee must complete the company’s claim form, attach the necessary documents, and submit them as soon as possible.

How Insurance Works?

An example will help us understand ‘what is insurance’:

It is assumed that Sameer bought a term insurance policy for 1 crore and designated his wife as the nominee. If he died unexpectedly during the term of the policy, the company will pay the 1 crore assured sum to the nominee and end the policy. Sameer’s wife can use the payout amount to take care of their financial obligations, repay any remaining loans, and maintain her current standard of living.

What are Insurance Components?

Here is a list of the components of insurance to help you understand what it is:

Premiums Payable: An insurance policy’s premium payable is the amount the policyholder must pay for the applicable premium payment term to get the desired life cover. A limited or regular premium payment term can be used to pay premiums on a monthly, quarterly, annual, or half-yearly basis.

Policy Limit: Generally, a policy limit refers to the maximum amount of money that a nominee or policyholder is eligible to receive in the event of an insurance claim. There are a number of factors that influence the maximum amount, including the premiums paid, the term of the policy, the severity of the eventuality, etc.

Deductible: Health and general insurance policies usually have deductibles that must be paid before a claim can be settled.

Life InsuranceGeneral Insurance Term Insurance PlanHealth Insurance Plan Term Return of Premium Plan Motor Insurance  100% Refund of Premium Plan at No Cost Car Insurance Plan Whole Life Insurance Policy Home Insurance Savings Plan Travel Insurance Child Insurance Plan Business Insurance Endowment Plan Fire and Burglary Insurance Money Back Plan Marine Insurance Unit Linked Plans Cyber Insurance Pension Plans Group Insurance

There are two main types of insurance:

What are some of the most important insurance policies in India?

Let’s look at some of the must-have insurance policies available in India after understanding ‘what is insurance’:

Plans for term life insurance offer policyholders pure risk protection through the policy term at highly affordable premiums for a large life cover. You can buy term plans online by comparing the available plans.

An insurance plan covers hospital bills and treatment costs the policyholder may incur if he or she is diagnosed with a life-threatening illness.

The Government of India requires everyone to have motor insurance for their vehicles. With these plans, you can get comprehensive coverage against the risks of motor damage.

The purpose of home insurance is to protect your house against unforeseen events such as burglary, theft, and natural disaster damage.

What are the Tax Benefits of Insurance?

In addition to providing financial protection and wealth creation, insurance plans also help policyholders save on taxes.

• In India, you can claim a tax deduction of up to 1.5 Lacs under section 80C.
• In section 80D, health riders such as critical illness riders, hospital riders, terminal illness riders, etc., receive tax benefits. For life assured under the age of 60, the maximum deduction is Rs. 25 000, while for life assured over the age of 60, the maximum deduction is Rs. 50 000.
• Section 10(10D): Death benefits received by the nominee are tax-free, but maturity benefits received on policies with annual premiums exceeding 5 lacs are taxed.