People Keep asking what is “Life Insurance”, is it defined as an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

Get to know the meaning of “Insurance Policy” too, is defined as a document detailing the terms and conditions of a contract of insurance.

TYPES OF INSURANCE

Life Insurance
Life Insurance is different from other insurance in the sense that, here, the subject matter of insurance is the life of a human being.

The insurer will pay the fixed amount of insurance at the time of death or at the expiry of a certain period.

At present, life insurance enjoys maximum scope because life is the most important property of an individual.

Each and every person requires insurance.

This insurance provides protection to the family at the premature death or gives an adequate amount at the old age when earning capacities are reduced.

Under personal insurance, a payment is made at the accident.

The insurance is not only a protection but is a sort of investment because a certain sum is returnable to the insured at the death or the expiry of a period.

General Insurance
General insurance includes Property Insurance, Liability Insurance, and Other Forms of Insurance.

Fire and Marine Insurances are strictly called Property Insurance. Motor, Theft, Fidelity and Machine Insurances include the extent of liability insurance to a certain extent.

The strictest form of liability insurance is fidelity insurance, whereby the insurer compensates the loss to the insured when he is under the liability of payment to the third party.

Property Insurance
Under the property insurance property of person/persons are insured against a certain specified risk. The risk may be fire or marine perils, theft of property or goods damage to property at the accident.

Marine Insurance
Marine insurance provides protection against the loss of marine perils.

The marine perils are; collision with a rock or ship, attacks by enemies, fire, and captured by pirates, etc. these perils cause damage, destruction or disappearance of the ship and cargo and non-payment of freight.

So, marine insurance insures ship (Hull), cargo and freight.

Previously only certain nominal risks were insured but now the scope of marine insurance had been divided into two parts; Ocean Marine Insurance and Inland Marine Insurance.

The former insures only the marine perils while the latter covers inland perils which may arise with the delivery of cargo (gods) from the go-down of the insured and may extend up to the receipt of the cargo by the buyer (importer) at his go down.

Fire Insurance
Fire Insurance covers the risk of fire.

In the absence of fire insurance, the fire waste will increase not only to the individual but to the society as well.

With the help of fire insurance, the losses arising due to fire are compensated and the society is not losing much.

The individual is preferred from such losses and his property or business or industry will remain approximately in the same position in which it was before the loss.

The fire insurance does not protect only losses but it provides certain consequential losses also war risk, turmoil, riots, etc. can be insured under this insurance, too.

Liability Insurance
The general Insurance also includes liability insurance whereby the insured is liable to pay the damage of property or to compensate for the loss of persona; injury or death.

This insurance is seen in the form of fidelity insurance, automobile insurance, and machine insurance, etc.

Social Insurance
The social insurance is to provide protection to the weaker sections of the society who are unable to pay the premium for adequate insurance.

Pension plans, disability benefits, unemployment benefits, sickness insurance, and industrial insurance are the various forms of social insurance.

Insurance can be classified into 4 categories from the risk point of view.

Personal Insurance
The personal insurance includes insurance of human life which may suffer a loss due to death, accident, and disease

Therefore, personal insurance is further sub-classified into life insurance, personal accident insurance, and health insurance.

Property Insurance
The property of an individual and of the society is insured against loss of fire and marine perils, the crop is insured against an unexpected decline in deduction, unexpected death of the animals engaged in business, break-down of machines and theft of the property and goods.

Guarantee Insurance
The guarantee insurance covers the loss arising due to dishonesty, disappearance, and disloyalty of the employees or second party. The party must be a party to the contract.

His failure causes loss to the first party.

For example, in export insurance, the insurer will compensate the loss at the failure of the importers to pay the amount of debt.

Other Forms of Insurance
Besides the property and liability insurances, there are other insurances that are included in general insurance.

Examples of such insurances are export-credit insurances, State employees’ insurance, etc. whereby the insurer guarantees to pay a certain amount at certain events.

This insurance is extending rapidly these days.

Miscellaneous Insurance
The property, goods, machine, Furniture, automobiles, valuable articles, etc. can be insured against the damage or destruction due to accident or disappearance due to theft.

There are different forms of insurances for each type of the said property whereby not only property insurance exists but liability insurance and personal injuries are also the insurer.

Death benefit
In case any unexpected thing happened to the insured, which results in the loss of income for their family, the insurance company provides compensation in the form of the death benefit. The appointed nominee receives the full sum assured plus the bonus accrued over a period.

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Apart from providing protection against death, many life insurance policies provide the benefit of monthly income, which is a great boon for people old-aged people or people who are nearing the retirement age and have diminishing income. While purchasing a life insurance policy, make sure that you compare the features and benefits of different policies and choose the one that best suits your needs so that you get maximum protection.

Valuable return on your investment
Several financial advisors in India suggest that everyone must invest in a life insurance policy not only to provide your family with the financial protection when you are not around but also from the perspective of gaining valuable returns from the investment. Many life insurance schemes in India offer a decent recent in the form of bonus that no other investment tools offer.

Also, life insurance is a safe investment tool as compared to other investment option. The money you invest in your policy is returned to you in full as the sum assured at the end of the term or after the demise of the insured.

How much life cover is enough to secure your family?
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Tax Benefits
One of the many advantages of life insurance is that it provides many tax benefits. If you are a salaried employee and have purchased a life insurance policy, you can claim deduction under Section 80C. Currently, under this section, you can get a maximum tax deduction of Rs. 1, 50,000.

Availability of loan
In the event of any emergency where you need money desperately, you can take advantage of your life insurance policy and take a loan against it. Today, almost all the major insurance companies in India provide loan facilities to the policyholders. You can borrow a certain percentage of the cash value of the policy, or the sum assured depending on the policy provisions. Make sure that you check with the loan policies with the insurer before you subscribe for the policy.
Aids in financial planning through different life stages

Planning your finances well through different stages of life is paramount. This is where life insurance can play an important part. You can take leverage the benefits of term life insurance and make provisions for financial support to your family in the event of your sudden death.

This will not only help them cope with the financial obligations well but can also help them live a financially independent life without having to compromise on their lifestyle. Also, by investing in a life insurance policy, you can meet your various future goals like child marriage, paying your child’s education, building a dream home or building a corpus for post-retirement life. Make sure that you choose the right insurance policy that suits your needs.

Guaranteed income

Your family feel secured because you bring in regular income to cater to their needs. The income you earn aids in paying the loan (if any), rent, daily bills, child education and other household expenses. Certain life insurance policies provide regular pay-outs, which can compensate for the loss of income due to the death of the family’s earning member.


Additional coverage

Many insurance companies in India allow the life insurance policyholders to purchase additional cover, over and above the default coverage included in the policy. This additional coverage is called riders. The riders allow you to increase the coverage and get comprehensive coverage against risks that may not be included in the main scope of the life policy.

The riders may include coverage against personal accident, waiver of premium payments, critical illness, loss of income due to a disability, etc. The additional coverage can also help you get tax benefits that are in line with the life and health insurance policy. For example – if you have opted for a critical illness rider, you can claim deduction on the premium under Section 80D of the Indian Income Tax Act.
Security of business


There a few life insurance companies in India that give an option, wherein if you have bought a policy and run a business, then your partner can purchase a share of the policy holder’s after the death policyholder. In this case, the business partner will have to sign an agreement with the life insurance company and the pay-out receive after selling the share will be given to the appointed nominee. However, you must know that the dependent or the nominee of the policyholders do not get any stake in the company.

Just like every financial product in the market, there are life insurance pros and cons. You have seen the various pros of having a life insurance policy, now lets us look at some of the disadvantages of life insurance.

Disadvantages of Life Insurance
Can be expensive for old-aged people
Buying a life insurance policy would seem to be the most logical thing to do when you are young and why not? The premium for young buyers is quite affordable. The premium amount for a life insurance policy is determined by your personal medical condition, family’s medical condition and your age.

But if you are over 40 or if you are nursing an illness or if you have a history of bad medical condition in the family, the insurance company will consider you as a risky buyer and so to mitigate the risk they charge a higher premium. So, if you are old or carrying a chronic ailment, a life insurance policy can be helpful for your loved one, but it would an added burden on your expenses.

The returns on life insurance are not significant
Certain life insurance policies like a whole life insurance policy provide the dual benefit of investment-cum-protection. The cash-value component of the whole life policy is a great way to save money for your future needs like retirement and providing coverage for the family in the event of your demise.

However, you must know that the returns offered on the investment are much lower than other investment tools. You can invest your hard-earned money in a term insurance plan and invest the additional cash in other investment tools and increase your chances of earning higher returns.

Insurers may not pay the benefit
There have been many instances wherein the insurance companies have denied paying the sum assured or the death benefit to the policyholder or the nominee. A lot of times, the insurance company uses various tricks to evade paying the benefits even after the maturity of the policy. They would cite many hidden charges or clauses to reduce the pay-out. It is, therefore, important to carefully understand the finer details of the policy and choose a company that has a positive pay-out rate. Further, it would be best advised to consult your financial advisor about the pros and cons of the policy before entering a contract.

Complex policies
In India, many insurance policy providers offer a wide range of life insurance policies to suit the different needs of the customers. While the vast choices give you the liberty to choose the best, it can also create confusion in the minds of the policy buyers, especially the ones who have no prior experience of buying an insurance policy.

Also, different insurance policies have different features, and it can be novice buyers to understand the difference. Some policies are simple, and some are not so simple, which can be beyond the understanding capacity of a common man. It can be daunting to choose the right life insurance policy.