Insurance shields us from financial loss. It is a way of risk management used to safeguard against the risk of a contingent or uncertain loss. Simply speaking, it is a means by which risks of loss or damage can be shifted to another party (the insurers) on payment of a charge known as premium. Most of us are secured with different types of insurance policies. Let us discuss the types of insurance in India.
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An entity that provides insurance is known as an insurer, generally organizations(Insurance Company, insurance carrier or underwriter). The party whose risk is shifted to the insurer is known as the insured or policyholder. In this contract, Insurance Policy, between the insurer and insured, the insurer shoulders to pay a fixed amount(Premium), in exchange for a fixed sum (premium), on the happening of a certain event (like at a certain age or on death), or compensate the actual loss when it takes place, due to the risk insured, to the insured. The insurer itself can reinsure, with another insurance company to tackle its own risk.
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Importance and Benefits of Insurance
- It serves as a very useful means of spreading the effects of personal as well as business risks by way of loss or damage among many. Thus, the insured has a sense of security.
- Individuals who pay premium periodically out of current income can look forward to an assurance of receiving a fixed amount on retirement or his family being secured in the event of his death.
- Businessmen pay a premium for insurance of risk of loss without constant worry about the possibility of loss or damage.
- Source of employment for many people.
- It helps both trading and industrial enterprises, which involve huge investments in properties and plants as well as inventories of raw materials, components, and finished goods.
- Income tax benefits for LIC up to Rs.1.5 lakh(under section 80C) and medical insurance premium for self, family, and parents (under 80D) can be claimed.
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Methods of Insurance
According to the study books of The Chartered Insurance Institute, there are variant methods of insurance as follows:
- Co-insurance – risks shared between insurers.
- Dual insurance – having two or more policies with overlapping coverage of a risk (both the individual policies would not pay separately – under a concept named contribution, they would contribute together to make up the policyholder’s losses. However, in case of contingency insurance such as life insurance, dual payment is allowed).
- Self-insurance – situations where risk is not transferred to insurance companies and solely retained by the entities or individuals themselves.
- Reinsurance – situations when the insurer passes some part of or all risks to another Insurer, called the reinsurer.
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Types of Insurance in India
- Life Insurance: Whole life plan, Term plan(risk coverage), Unit Linked Insurance Plan(ULIP-investment and insurance), Endowment Plan(Insurance and savings), Retirement plan, Child’s Plan.
- Fire Insurance: Compensates the insured for the loss or damage suffered by reason of certain defined subject matter being damaged or destroyed by fire.
- Marine Insurance: In this contract, the insurer agrees to reimburse the owner of a ship or cargo against risks, which are incidental to marine adventures. It also includes insurance of the risk of loss of freight due to the cargo. Policies related to the same include Time Policy, Voyage Policy(for cargo), Floating Policy.
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- Health Insurance: It covers the cost of healthcare. An individual or his entire family can be insured.
- Home Insurance: Covers loss against home(fire accidents, burglary, weather conditions like a flood).
- Motor Vehicle Insurance: Covers two-wheelers, private cars from accidents or natural calamities. It also covers the liabilities arising out of third party damage/injury.
- Education Insurance: Helps to get the sum amount when the child reaches for higher education.
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Types of Insurance: Government-Sponsored Socially Oriented Plans
- Pradhan Matri Jeevan Jyoti Bima Yojana(PMJJBY).
- Pradhan Matri Suraksha Bima Yojana(PMSBY).
- Life Cover under Pradhan Matri Jan Dhan Yojana (PMJDY).
- Varishtha Pension Bima Yojana – Pension scheme for senior citizens.
- Pradhan Matri Fasal Bima Yojana(PMFBY)- Provides a comprehensive insurance cover against the failure of the crop thus helping in stabilizing the income of the farmers. The Scheme covers all Food & Oilseeds crops and Annual Commercial/Horticultural Crops for which past yield data is available.
- Pradhan Matri Vaya Vandana Yojana(PMVVY)- Implemented through Life Insurance Corporation (LIC) of India. It helps to protect elderly persons aged 60 years and above against a future fall in their interest income due to the uncertain market conditions. Also to provide social security during old age.
- Restructured Weather Based Crop Insurance Scheme(RWBCIS).
Thus, insurance is a mutual faith between the insurer and the insured. It also helps to restore the position and properties even after the risk. Subscribe Entri, the best platform for all Government level exams, and get quick notes on static GK.