Different Types of Insurance in India – 7 Key Things to Consider Before Your Purchase

This post was most recently updated on October 28th, 2023

Insurance is a crucial aspect of financial planning, providing protection and security against unexpected events. In India, there are various types of insurance available to individuals and businesses, each with its own set of benefits and considerations.

In this article, we’ll explore the seven key things to consider when choosing the right types of insurance for your needs, including life insurance, health insurance, motor insurance, home insurance, travel insurance, personal accident insurance, and business insurance.

Consider reading: Types of life insurance available in India

Overview of Types of Insurance in India

In India, there are various types of insurance available to individuals and businesses.

Insurance in India can be broadly categorized into two main types:

1. Life insurance
2. General insurance.

Life insurance provides financial protection to the policyholder’s family in the event of the policyholder’s death and can also provide savings and investment opportunities.

Some types of life insurance available in India include term life insurance, whole life insurance, endowment insurance, money-back insurance, unit-linked insurance plans (ULIPs), and annuities.

General insurance covers financial losses due to unexpected events such as accidents, natural disasters, or damage to property.

Some types of general insurance available in India include motor insurance, home insurance, travel insurance, personal accident insurance, business insurance, agricultural insurance, marine insurance, liability insurance, fire insurance, and flood insurance.

Looking for investments? Consider reading: Top 10 best investment options in India

Types of Life Insurance in India

Life insurance is a type of insurance that provides financial protection to the policyholder’s family in the event of the policyholder’s death.

It can also provide savings and investment opportunities. Some types of life insurance available in India include:

1. Term life insurance: Term life insurance is a type of life insurance that provides coverage for a specific period of time, such as 10 or 20 years. The policy pays a benefit to the beneficiary if the policyholder dies within the term of the policy.
2. Whole life insurance: This is a type of life insurance that provides coverage for the policyholder’s entire life. The policy includes a savings component that accumulates cash value over time.
3. Endowment insurance: This is a type of life insurance that combines insurance coverage with a savings component. The policy pays a benefit to the beneficiary if the policyholder dies within the term of the policy, or to the policyholder if they survive the term.
4. Money-back insurance: This is a type of life insurance that provides periodic payments to the policyholder during the term of the policy, in addition to a final lump sum payment upon the policy’s maturity or the policyholder’s death.
5. Unit-linked insurance plan (ULIP): ULIP is a type of life insurance that combines insurance coverage with investment opportunities. The policyholder can choose to invest their premiums in various funds, and the policy pays a benefit to the beneficiary upon the policyholder’s death or at the policy’s maturity.
6. Annuity: This is a type of life insurance that provides a steady stream of income to the policyholder after they retire. The policyholder pays premiums during their working years, and the policy pays out regular payments to the policyholder during their retirement.
7. Group life insurance: This is a type of life insurance that is offered to a group of people, typically through their employer or a membership organization. The policy pays a benefit to the beneficiary if the policyholder dies while covered under the policy.
8. Child Plans: Child plans are types of insurance policies that help you financially secure your child’s life goals, such as higher education and marriage, even in your absence. In other words, a child plans to offer a combination of savings and insurance benefits that aid you in financial planning for your child’s future needs at the right age.
9. Pension Plans: a pension plan can be a type of insurance in India that allows you to create a financial cushion for your life post-retirement, in which you contribute a specific amount of money regularly until your retirement. Subsequently, the accumulated amount is given back to you as an annuity or pension at regular intervals. 

As you can see above, there are many different types of insurance in India that provide life insurance. It’s key for you to choose insurance that suits your needs in the long term.

In India, there are many companies that sell Life insurance policies. Some of them are LIC, HDFC Life, ICICI Pru Life, SBI Life, etc.

Key things to Consider while Buying Life Insurance in India

There are several things to consider when buying life insurance in India:

1. Coverage amount: It’s important to choose a coverage amount that is sufficient to meet the financial needs of the policyholder’s loved ones in the event of their death. Consider factors such as the policyholder’s income, debts, and any future financial obligations, such as children’s education or retirement expenses.
2. Type of policy: There are several types of life insurance available in India, including term life insurance, whole life insurance, endowment insurance, money-back insurance, and unit-linked insurance plans (ULIPs). It’s important to choose a policy that meets the policyholder’s specific needs and goals.
3. Premiums: The premiums for life insurance policies can vary significantly depending on the policy type, coverage amount, and other factors such as the policyholder’s age and health. It’s important to choose a policy that fits the policyholder’s budget and financial goals.
4. Insurance company: It’s important to choose a reputable and financially stable insurance company that has a track record of paying claims promptly. Research the insurance company’s ratings and reputation before purchasing a policy.
5. Policy terms and conditions: It’s important to thoroughly understand the terms and conditions of a life insurance policy before purchasing it. This includes the policy’s coverage period, exclusions, and any riders or endorsements that may be available.
6. Beneficiary: The policyholder should choose a beneficiary or someone who will receive the policy’s death benefit upon the policyholder’s death. It’s important to choose a beneficiary carefully and to keep the designation up-to-date.
7. Review and update: It’s important to review and update the policy regularly to ensure that it continues to meet the policyholder’s changing needs and goals. This may include adjusting the coverage amount, adding or removing riders or endorsements, or updating the beneficiary designation.

Consider reading: IRDA Claim Settlement Ratio for insurance companies

Mistakes to Avoid while Buying Insurance in India

Regardless of the type of insurance; Here are some mistakes to avoid when buying insurance in India:

1. Not comparing policies: It is important to compare policies from different insurers to ensure that you are getting the best coverage at the most affordable price.
2. Not disclosing pre-existing medical conditions: Failing to disclose pre-existing medical conditions can result in your claim being denied.
3. Not reading the fine print: It is important to thoroughly read and understand the terms and conditions of the policy before purchasing it.
4. Not reviewing the policy periodically: Life insurance needs and circumstances change over time. It is important to review your policy periodically to ensure that it still meets your needs.
5. Not reviewing the claim settlement ratio: The claim settlement ratio is the percentage of claims that an insurer has settled. It is important to choose an insurer with a high claim settlement ratio.
6. Not purchasing sufficient coverage: It is important to purchase sufficient coverage to ensure that your loved ones are financially protected in the event of your death or disability.
7. Purchasing insurance for the wrong reasons: Insurance should be purchased to protect against financial loss, not as an investment.

Types of General Insurance in India

General insurance refers to the type of insurance that protects against financial losses due to unexpected events such as accidents, natural disasters, or damage to property. Some examples of types of general insurance available in India include:

Please note that this table provides a concise summary of each type of insurance and their respective coverage.

As you can see above, there are many different types of insurance in India that provide general insurance. It’s key for you to choose an insurance type that suits your needs and fulfills its purpose.

Key things to consider while Buying General Insurance in India

There are several key things to consider when buying general insurance in India:

1. Type of coverage: It’s important to choose a policy that provides the coverage that is needed. This may include coverage for property damage, liability, accidents, or natural disasters, depending on the policyholder’s specific needs.
2. Coverage amount: It’s important to choose a coverage amount that is sufficient to meet the policyholder’s needs. Consider factors such as the value of the property or assets being insured, the policyholder’s potential liability, and the policyholder’s financial resources.
3. Premiums: The premiums for general insurance policies can vary significantly depending on the type of coverage, coverage amount, and other factors such as the policyholder’s location and risk profile. It’s important to choose a policy that fits the policyholder’s budget and financial goals.
4. Insurance company: It’s important to choose a reputable and financially stable insurance company that has a track record of paying claims promptly. Research the insurance company’s ratings and reputation before purchasing a policy.
5. Policy terms and conditions: It’s important to thoroughly understand the terms and conditions of a general insurance policy before purchasing it. This includes the policy’s coverage period, exclusions, and any riders or endorsements that may be available.
6. Deductibles: A deductible is an amount that the policyholder must pay out of pocket before the insurance company will pay a claim. It’s important to choose a deductible that is affordable and that fits the policyholder’s risk tolerance.
7. Review and update: It’s important to review and update the policy regularly to ensure that it continues to meet the policyholder’s changing needs and goals. This may include adjusting the coverage amount, adding or removing riders or endorsements, or updating the policy’s terms and conditions.

Tax Benefits of Various Types of Insurance in India

In India, some types of insurance provide tax benefits to policyholders. These tax benefits are intended to encourage people to purchase insurance, which can help protect against financial losses and provide financial security.

1. Life insurance: Policyholders can claim a tax deduction on premiums paid for life insurance policies under Section 80C of the Income Tax Act. The maximum deduction allowed is Rs. 1.5 lakh per financial year.
2. Health insurance: Policyholders can claim a tax deduction on premiums paid for health insurance policies under Section 80D of the Income Tax Act. The maximum deduction allowed is Rs. 25,000 per financial year for an individual policyholder and Rs. 50,000 per financial year for a family floater policy.
3. Pension plans: Contributions to pension plans, such as annuities and national pension schemes, are eligible for tax deductions under Section 80CCD of the Income Tax Act. The maximum deduction allowed is 10% of the policyholder’s salary or Rs. 1.5 lakhs, whichever is lower.

Overall, the tax benefits depend on the types of insurance you have taken, so choose the insurance that meets your needs.

Consider reading: Income Tax exemptions available for salaried employees

Final Thoughts on the Types of Insurance in India

In conclusion, choosing the right type of insurance is an important decision that requires careful consideration.

Whether you’re looking for protection for yourself, your family, or your business, there are a variety of insurance options available in India to suit your needs.

From life insurance and health insurance to motor insurance and business insurance, it’s important to understand the benefits and considerations of each type of insurance before making a decision.

By considering factors such as coverage, premiums, deductibles, and exclusions, you can make an informed choice and ensure that you and your loved ones are protected against unexpected events.

So, take the time to evaluate your insurance needs and choose the right types of insurance for your financial security and peace of mind.

FAQs on Types of Insurance in India