Various insurance types in India and their tax benefits

Insurance is one of the significant as well as critical aspects that everyone should know and understand.  If you are unsure about the various types of insurance available and their tax benefits, read on to know more.

Insurance acts as a security against the unexpected situations in life which financially disrupts the well being of a family. Thus, people prefer to purchase life insurance, term insurance and other types of insurance to avoid monetary crises and to secure their families. There is a wide gamut of policies that are available under life insurance plans that we will discuss below. Besides life insurance, there are several other types of policies such as health insurance, vehicle insurance, home insurance etc. which come under the category of General Insurances. These policies offer all-inclusive financial support to the insured as well as his/her family members.

Whichever insurance plan you may purchase, the crucial thing is to understand all the relevant details of a plan to be able to choose the best one to suit your needs. In this post, we are discussing the various types of insurance policies that are available and their tax benefits in India.

What is Insurance? How Many Types of Insurance Are There?

Insurance is like an agreement between two parties – the one buying a policy and the insurance company selling the policy. The agreement specifies financial coverage by the insurer to the insured against unforeseen events in return of an amount called, ‘Premium’.

There are two insurance types in India including General Insurance and Life Insurance. They are further subdivided into other categories as mentioned in the table below:

Let us understand the various types of insurance policies in details below:

General Insurance 

General insurances are the policies that do not come under the domain of life insurance. These insurances offer financial coverage against losses incurred by the policyholder on various things other than life of the insured.  On the whole, general insurance consists of various types of insurance policies which offer monetary security against losses sustained by liabilities like your vehicle, home, your health, etc. Let us discuss the various general insurance types one by one now.

Here are the various general insurance categories:

1. Health Insurance –  Health insurance caters to the health needs of individuals. A health insurance policy covers the costs incurred by a policyholder on healthcare. A health plan pays the policyholder the cost of treatment incurred for a medical condition via two ways, reimbursement policy and cashless policy.

A health insurance policy covers different medical expenses, such as;

• • • Cost of Hospitalization
    • Cost of treatment against critical illnesses
    • Pre and post hospitalization medical costs
    • Daycare procedure costs etc.

In India, there are different plans of health insurance that are available such as;

• • Individual Health Insurance
  • Family Floater Insurance
  • Critical Illness Insurance
  • Senior Citizen Health Insurance
  • Group Health Insurance
  • Maternity Health Insurance
  • Personal Accident Insurance

Individual Health Insurance provides coverage to an individual or a single person, while a Family Floater Insurance provides coverage to all family members within one plan. A Critical Illness insurance provides coverage against critical diseases such as cardiovascular diseases, cancer, stroke, kidney failure, etc., while Senior Citizen Health Insurance cater to individuals of 60 years and beyond.

Group Health Insurances are normally offered by company/employer to their workers/employee. On the other hand, Maternity Health Insurance covers the expenses for delivery charges, pre and post-natal costs and protects the mother and baby. Similarly, Personal Accident Insurance covers injuries, disability and other financial liabilities like death brought upon by accidents.

2. Motor Insurance – A Motor insurance allows financial security in the event of an accident involving your vehicle. Different kinds of vehicle insurance policies available are namely; Car Insurance, Bike Insurance, and Commercial Vehicle Insurance.

A Car Insurance policy offers protection to your individually owned four-wheeler vehicle, whereas a Bike Insurance covers your individually owned two-wheelers against accidents.  On the other hand, a Commercial motor Insurance provides coverage to commercial vehicles.

3. Home Insurance – A home insurance plan protects your home and its contents against damage done by men as well as natural calamities. Home insurance policies are further categorized into – Building Insurance, Standard Fire insurance, Public Liability insurance, Personal Accident insurance, Theft Insurance, Contents Insurance, Tenants’ Insurance,  Landlords’ insurance etc.

4. Fire Insurance – As the name signifies, Fire insurance plans compensate against losses incurred because of fire. They cover both companies as well as individuals. Various kinds of fire insurance include Valued policy, Specific Policy, Floating Policy, Consequential Policy, Replacement Policy and all-inclusive Fire insurance policy.

5. Travel Insurance – Travel insurance policies cover the insured as well as his/her loved ones during their travels in India or abroad. This insurance ensures a safe journey to the insured. It also covers issues like flight cancellations, medical emergencies, loss of baggage, passport etc.

Among the various policies of travel insurance are – International Travel Insurance, Senior Citizen Travel Insurance, Individual Travel Insurance, Family Travel Insurance, Domestic Travel Insurance, Student Travel Insurance etc.

Life Insurances

The second category in insurance is Life Insurance policies, which also include a range of covers.  Individuals buy Life Insurance policies to get coverage against untoward events such as death or any kind of disability (permanent or temporary). There are several types of life insurance policies in India which offer financial protection to policyholders as well as capitalize on their savings.  If you want to secure your family members against future financial turmoil, investing in life insurance is a wise decision.

There are various kinds of Life insurance policies available as mentioned below:

• Endowment Plans
• Term Life Insurance
• Unit-Linked Insurance Plans
• Whole Life Insurance
• Pension Plans
• Child Plans

1. Term Life Insurance Plans- Among the various types of insurance policies, Term Insurance is the most affordable one. Also known as Pure life insurance, the policyholder of a term plan can select a life cover of a specific sum assured and a particular tenure. If anything unfortunate happens to the policyholder during the tenure of the policy, the insurer offers the insured sum as death benefit to the nominee of the policy.

2. Whole Life Insurance Plans- These are traditional plans of life insurance. The whole life insurance plans cover the insured for his/her entire life. Further, whole life insurances serve the dual purpose of death benefit as well as offering a saving option for the insured. These policies are available with a maturity age of 100 years, beyond which they become matured endowment plans.

Read More: Types of Whole Life Insurance Policy and Their Advantages

3. Endowment Plans- Endowment plans also offer monetary coverage to investors against unfortunate situations in life along with allowing them the option to save enough money for the future. Policyholders of an endowment plan can accumulate a corpus amount in case the person outlives the policy beyond maturity. In case the insured dies during the term of the policy, the beneficiary receives the total sum assured amount.

4. Unit-Linked Insurance Plan (ULIP) –Like endowment plans, Unit Linked Insurance Plans or ULIPs also offer investment as well as insurance benefits to the insured. Under ULIP, a part of the premium paid by the insured is invested in a variety of financial instruments depending on the risk appetite of the policyholder, while the rest of the amount is dedicated towards life cover.

5. Child Plans- Child plans are insurance policies which secure a child’s life financially to help attain goals like higher education, marriage etc.  Child plans are a good combination of insurance and savings and they benefit in planning your children’s future.

6. Pension Plans- Pension plans or retirement plans are investment policies that support an individual to accumulate savings over a period of time. The savings help the insured to deal with various financial uncertainties after retirement. So, you accumulate money in a pension plan during your working years, which you get back as annuity after you are retired.

Tax Benefits Available under Different Insurance Types in India

Various types of life insurance plans allow tax benefit on the premium paid. Section 80C of Income tax allows tax deduction of up to INR 1.5 lakh on premium of life insurance plans.  Similarly, section 80D allows tax deduction on health insurance up to Rs 25,000 for policyholder, spouse and children along with an additional INR 25,000 for parents (below 60 years). Tax deductions can go up to INR 1 lakh for senior citizens.

Conclusion

You are now aware of the various insurance plans in India as discussed above. Most insurance policies also allow tax deductions. However, it is important to read and understand the policies well before investing in them.

Top General Insurance Companies