Insurance Cover – Meaning, Importance and Types

In a world filled with uncertainties, an insurance cover acts as a protection. Insurance is a risk mitigating mechanism that helps restore balance in one’s life. Having an insurance cover not only benefits the policyholders by helping lead a stress-free life but also aids in the development of the nation at large. There are many types of insurance cover available in the market. However, the most popular ones are life insurance, medical insurance and auto insurance.

What is insurance coverage?

Insurance coverage is the risk coverage for an individual by way of insurance services. An insurance cover helps an individual or an entity to protect themselves from unforeseen occurrences. It acts as a safety net protecting the policyholder and the family from unexpected situations.

To be covered under insurance, an individual has to pay a small fee monthly or annually for a certain period. In return, the insurance company will pay for the financial damages in case the person or object insured is damaged. By paying a small fee, one can transfer their financial risk to the insurance company.

Multiple factors determine the insurance cover and the premium amount. Some of them are age, smoking habits, medical tests etc.

Why is insurance coverage important?

Having an insurance cover becomes essential in a world filled with uncertainties and risks. Individuals, businesses, cars, properties etc. are exposed to varying levels of risks. Few of them include loss of life, major health issues, accidents, loss of property, etc. It is not always possible to prevent these losses; however, one can be compensated for such losses through insurance coverage. Below are the reasons why having insurance coverage is important.

Provides safety and secures the balance

Insurance provides safety against unforeseen circumstances. Individuals and businesses face uncertainties at every stage of their life and insurance act as a safety net to protect them from any risks. Insurance provides a risk mitigating mechanism against any incident that disrupts the balance of an individual’s life.

Provides support to families

Medical emergencies can knock on anyone’s door at any time. Though financial experts’ advice that an emergency fund is to be maintained, not all hospital expenses are covered by this fund. With rising medical inflation, even small procedures require one to have deep pockets. Medical insurance can aid a family in times like these and help them meet such unexpected hospital expenses.

Reduces stress

During uncertainties, businesses and individuals face emotional stress. Many might not be able to cope up if financial stress is added to it. Insurance helps reduce the financial stress in case of loss of a person or any asset. Moreover, in case of the loss of a person, the family need not worry about their financial well-being due to the loss of an income earning person. Insurance will help them protect their standard of living and continue with their lives.

Promotes economic growth

Insurance not only helps individuals and businesses, but it also benefits the economy at large. The insurance industry mobilises domestic savings into productive investments and contributes to overall economic growth.

Generates long term financial resources

Insurance is a long-term commitment. Hence when insurance companies collect premiums from millions of policyholders, they can choose to invest them in long term infrastructure projects that will aid the nation to develop and grow. Moreover, the insurance industry increases capital formation in the country by increasing employment opportunities as well.

Types of insurance cover

There are a wide range of insurance policies available that aim to safeguard certain aspects of health and assets. Following are the types of insurance:

• Life Insurance
• Health Insurance
• Motor Insurance/ Auto Insurance
• Travel Insurance
• Property Insurance
• Mobile Insurance
• Cycle Insurance
• Bite Size Insurance

Types of insurance and its coverage

Life Insurance

Life insurance is a policy or cover that ensures financial freedom for one’s family after death. In the event of death, the loved ones would be devastated both mentally and financially. Therefore, life insurance policies ensure that in such an event, the family still gets financial assistance. Having a life insurance policy has the following benefits:

• Life insurance premium payment qualifies for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act.
• It encourages saving habits in an individual.
• Helps in securing a family’s financial future in case of unforeseen events.
• Helps in retirement planning.

Types of life insurance

Following are the types of life insurance plans in India:

• Term Insurance Plan: The benefit of this plan is available for a specified period.  For example, 30 or 40 years from the date of policy purchase.
• Endowment Plan: In endowment policies, a portion of the premiums go towards death benefit, while the policy provider invests the remaining.
• Unit Linked Insurance Plans or ULIPs: Unit Linked Insurance Plans also invest a part of the premiums, for example, in mutual fund investment. At the same time, the remaining towards the death benefit.
• Whole Life Insurance: As the name suggests, whole life insurance policies offer life cover for the entire life of the policyholder rather than for a specified term.
• Child’s Plan: This is an insurance cum investment policy, that provides financial aid for children throughout their lives. Furthermore, the death benefit is available as a lump sum to parents after death.
• Money-Back: This is a survival benefit scheme, where a certain percentage of the plan’s sum assured is paid after regular intervals.
• Retirement Plan: A pension that offers a fusion of insurance and investment. A portion of the premium is used to create a retirement corpus for the policyholder. The sum is available upon retirement as a lump sum or monthly payment.

Health Insurance

Health insurance is a general insurance that provides financial assistance to a policyholder for hospital treatments. Furthermore, some policies cover the treatment cost undertaken prior or post hospitalisation.

As the medical costs increase in India, buying health insurance has become a necessity. Following are the benefits of health insurance plans:

• Offers financial coverage against medical expenses.
• Health insurance policies offer cash claims. The medical bills are directly settled between the hospital and the health insurance provider.
• Premium payment towards a health insurance plan in India is eligible for tax benefits under Section 80D of the Income Tax Act up to INR 1,00,000.

Types of health insurance plans in India:

Following are the types of health insurance policies:

• Individual Health Insurance: This insurance plan in India offers medical cover to just one policyholder.
• Family Floater Insurance: The entire family gets the benefit of health insurance, without having to buy separate individual health insurance policies for everyone. Most commonly, husband, wife and two children can get the benefit of family floater policy.
• Critical Illness Insurance Cover: The critical illness insurance is a specialised health plan that offers extensive financial assistance to the policyholder with specific chronic illness.
• Senior Citizen Health Insurance: The policy caters to individuals of the age 60 years and above.
• Group Health Insurance: These policies are offered to employees of a company or organisation.
• Maternity Health Insurance: The policy covers medical expenses during delivery, pre-natal and post-natal stages. It covers both the newborn and the mother.
• Personal Accident Insurance: Personal accident insurance covers only the financial liability from disability, injuries or death due to accidents.
• Preventive Healthcare Plan: The policy covers the cost of treatment concerned with preventing a severe condition or disease.

Motor Insurance

Motor Insurance offers financial assistance in the event of accidents involving bike or car. Car insurance, two-wheeler insurance and commercial vehicle insurance are the different categories of motorised vehicles. Following are the benefits of motor insurance:

• Avoids any traffic fines or other legalities
• Meets all third-party liabilities. For example, an individual injures a person or damage someone’s property during an accident. The policy helps in addressing the monetary losses.
• Provides financial assistance to repair one’s vehicle. Post an accident one doesn’t have to spend large sums of repairs. The policy will help in paying for the expenses.

Types of motor insurance:

Following are the types of motor insurance policies:

• Third Party Liability: This is the basic type of motor insurance. It is the mandatory requirement for all motorised vehicle owners as per the Motor Vehicles Act of 1988. These policies pay only for the financial liability to the third party due to the said mishap. It also ensures no legal hassles due to the accident. However, it doesn’t cover for vehicle damages of the policyholder.
• Comprehensive Cover: This is a more comprehensive plan than a third-party liability. It offers protection and security to the policyholder. In addition to covering for the third-party liabilities, the plan also covers the vehicle repair expenses. Furthermore, the plan also offers to pay out in case the vehicle sustains man made, natural calamities, riots or damage due to fire.
• Own Damage Cover: It is a specialised form of motor insurance. One is eligible to avail the plan only if they purchased a car or two-wheeler after September 2018. The vehicle has to be brand new and not a second hand one.

Travel Insurance

Travel insurance policy ensures the financial safety of the traveller during a trip. It is a short-term insurance cover, unlike most other policies. Following are the benefits of travel insurance:

• It covers for flight delays or cancellations that may lead to significant financial loss for the passenger.
• Covers for baggage loss or delay in travel.
• Travel insurance makes sure that one gets all the necessary financial backing to reapply for interim or replacement documents. For example, visa and passport.
• International travel insurance covers for trip cancellations in case of accidental death or medical emergencies in the family.

Types of travel insurance

Following are the types of travel insurance:

• Domestic Travel Insurance: A policy that safeguards finances during travels in India.
• International Travel Insurance: the policy allows one to cover for unforeseen expenses during international travels. For example, baggage loss, medical emergencies, passport loss, etc.
• Home Holiday Insurance: While travelling with family, one’s home remained unprotected and unguarded. Chances of burglary may lead to significant losses. Home holiday insurance protects the policyholder from such losses.

Property Insurance

Property insurance is a safety cover for properties or immovable structures. If any damage befalls on these properties, then this insurance cover will compensate for it. Property insurance also covers all the contents inside the property.

Types of Property Insurance

In India, there are four types of property insurance. The following are the common types of property insurance in India:

• Home Insurance: Home insurance protects the house and its contents from any damage from fire, theft, earthquakes, or any such events.
• Shop Insurance: If a shop that a person owns generates income, then shop insurance will help him/her to protect the shop against any accidents, including natural calamities. Shop insurance will help the person undertake repairs immediately to restore the source of income.
• Office Insurance: Office insurance helps in insuring the office building and the expensive items inside it by compensating for any kind of damage to it.
• Building Insurance: Building insurance will help cover the entire building and its contents. This works when an individual owns the entire building.

Advantages of property insurance

Property insurance protects property from unforeseen circumstances. Below are a few advantages of property insurance.

• Protection against fire: One cannot eliminate the risk of fire in a property. However, one can reduce the financial liability by opting for property insurance that covers fire accidents.
• Protection against theft: Being robbed can be common, and often the loss is not compensated for. Property insurance will cover for loss against theft.
• Protection against natural calamities: With changing environmental conditions, storms and floods have become common. This damages the property, and the repairs often cost a lot. Property insurance will protect an individual from losing the livelihood due to such unforeseen circumstances by compensating for the loss.

Mobile Insurance

One of the new insurances that have been introduced lately is mobile insurance. With rising mobile prices, mobile phones have become a prized possession. Moreover, mobile phones and applications have been designed in such a way that it helps an individual to work and make money from it. Mobile insurance will help an individual to compensate for the money spent on repairs in case of accidental damages. Moreover, in the case of theft, it makes it easier to replace it.

Benefits of mobile insurance

Mobile insurance comes handy when an individual owns a premium smartphone. Following are the benefits of mobile insurance.

• Protection for new devices: When technology changes rapidly, a new smartphone can lose its value sooner than expected. When a new handset is purchased, phone insurance will protect its value.
• Protection against damage: Smartphones can be very delicate, and if one accidentally drops it, the entire phone can stop working. Hence mobile insurance can help pay for repairs of such damages.
• Protection against theft: With smartphones becoming costly, the chances of theft are high. Mobile insurance provides protection against theft by providing a replacement handset.

Cycle Insurance

In India, bicycles are widely used mode of transport by many. A cycle insurance policy gives access to necessary funds in case of any accidental damages or theft. Following are some of the benefits of cycle insurance:

• Regardless of the location of damage or accident, the policy provides financial assistance to the policyholder. For instance, even if it is in a different county, the plan will offer aid.
• The cycle insurance policy provides financial assistance for accidental damages due to fire or riots.
• In the event of accidental death, while riding a bicycle, the policy would offer a lump sum payout to the loved ones.

Bite Size Insurance

These are sachet insurance policies that minimise financial liability for a limited tenure, usually up to a year. Bite size insurance policies allow an individual to protect their finances against specific threats or damage.

For example, a bit sized policy may offer accidental cover for INR 1,00,000 for a year. Or, insurance cover for a specific disease. Following are benefits of bite sized insurance:

• One can get an insurance policy to avail financial protection at limited prices.
• The premiums are quite low that it doesn’t impact much on the overall monthly expenditure. In comparison to the sum insured, which is quite significant.