Insurance products are financial instruments that individuals and businesses can buy to protect themselves from financial loss. They are contracts (called policies) where an insurer agrees to compensate the insured for a specified loss, damage, illness, or death in return for regular payments (called premiums).
Life Insurance Products
These products provide a financial benefit in case of the insured person’s death or after a certain period. Their primary goal is to provide financial security for their family.
1. Term Insurance Plan
This is the purest and cheapest form of life insurance.
- How it works: It provides a large sum of money (the “sum assured”) to the nominee if the insured person dies during the policy term. If the person survives the term, no money is paid back.
- Purpose: To provide maximum life cover at a minimal cost.
2. Endowment Plan
A combination of insurance and savings.
- How it works: The sum assured is paid out to the nominee on the death of the insured. However, if the insured person survives the policy term, they receive the full sum assured.
- Purpose: To provide both life cover and a lump sum amount for future goals.
3. Unit Linked Insurance Plan (ULIP)
A combination of insurance and market-linked investment.
- How it works: A part of the premium goes towards providing life cover, while the remaining part is invested in market instruments like stocks or bonds, similar to a mutual fund.
- Purpose: To provide life cover along with the potential for higher returns by participating in the capital markets.
4. Pension Plan
A retirement-focused product.
- How it works: The policyholder pays premiums during their working years to build a retirement fund. After retirement, this fund is used to provide a regular income (pension or annuity).
General Insurance Products
These products offer protection for assets and health. They are typically short-term contracts, renewed annually.
1. Health Insurance
A policy that covers medical and surgical expenses.
- How it works: It either reimburses the expenses incurred by the policyholder or pays the hospital directly (cashless facility).
- Purpose: To protect against the high costs of medical treatment.
2. Motor Insurance
A policy that covers financial losses arising from accidents involving your vehicle.
- How it works: It is mandatory in India to have at least Third-Party Liability insurance, which covers damages to another person or property. Comprehensive Insurance covers both third-party liability and damage to your own vehicle.
3. Home Insurance
It provides cover against risks like fire, theft, floods, earthquakes, and other natural calamities.
What it is: A policy that protects your house and its contents.