Explained: different types of life and non-life Insurance policies

This article offers you the details of different types of life insurance policies, as well as general (non-life) policies like Property Insurance, Liability Insurance, Motor Insurance, Health Insurance, Travel Insurance Marine Insurance, cargo, etc.

Insurance contracts can be broadly classified into two categories based on the nature of the insured risk viz. life insurance and general insurance.

In insurance policy, there are three important terms viz. Premium, Sum insured, Sum assured.

Premium: The insured needs to pay a regular amount of premiums to the insurer. The insurer pays a predetermined sum assured to the insured if an unfortunate event occurs, such as the death of the life insured, or damage to the insured or his property.

Sum Insured: Sum insured is applicable for a non-life insurance policy like home and health insurance. It refers to the maximum cap on the costs you are covered for in a year against any unfortunate event.

Sum Assured: Sum assured is the amount the life insurance company pays to the nominee if the insured event happens (death of insured).

Insurance is a legal agreement between an insurer (insurance company) and an insured (individual/legal entity), in which an insured receives financial protection from an insurer for the losses he may suffer under specific circumstances.

Life Insurance Contracts: A contract of life insurance (also known as ‘life assurance’) is a contract whereby the insurer undertakes to pay a certain sum either on the death of the insured or on the expiry of a certain number of years. They are primarily concerned with protecting individuals and their families against financial hardships arising from the insured’s death, disability, or longevity. Life insurance contracts can further be classified into (i) whole life insurance, (ii) Term life insurance, (iii) Endowment Policies, and (iv) Annuities

(i) Whole Life Insurance: Whole life insurance (also referred to as permanent life insurance) refers to life insurance policies that are meant to last until death and have an investment aspect. Under this type of contract, the insurer guarantees coverage for the entire lifetime of the insured, provided premiums are paid. It combines protection and investment features, offering a death benefit to beneficiaries upon the insured’s demise.

(ii) Term Life Insurance:  Term insurance is a life insurance product, which offers financial coverage to the policyholder for a specific period, characteristically ranging from one to thirty years. If the insured individual passes away during the policy term, the beneficiaries receive the death benefit. However, there is no maturity or investment component in term life insurance.

(iii) Endowment Policies: An endowment policy is a type of life insurance policy that has both insurance and a savings component. These policies offer guaranteed benefits on death or maturity, irrespective of market volatility with a tenure ranging from 5 years and going up to 30 or 35 years. Some plans also offer bonus additions. Such plans are called participating or with-profit endowment plans.

Anticipated endowment plans are also called money-back insurance plans, these policies pay a part of the sum assured during the policy tenure in the form of money-back benefits. This makes the planned liquid and gives you funds during the policy tenure. Moreover, the death benefit is not affected by the money-back benefits that you have received. In the case of death during the policy tenure, the full death benefit is paid.

Child plans

Child plans are endowment plans designed to create a guaranteed³ corpus for the child’s future financial needs. Most child plans come with a premium waiver rider. This rider waives off the premium if the parent dies during the policy tenure. The plan is not affected, and it continues till maturity. The insurer contributes the premium on the parent’s behalf. On maturity, the promised maturity benefit is paid.

(iv) Annuities:  An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. Annuities differ from traditional life insurance policies as they focus on providing a regular income stream to the annuitant.

Non-life Insurance contracts:

Non-life Insurance contracts are known as General insurance contracts. These contracts aim to protect against various perils, including like Property Insurance, Liability Insurance, Motor Insurance, Health Insurance, Travel Insurance Marine Insurance, etc.

a) Property Insurance: Property insurance contracts safeguard physical assets such as buildings, machinery, equipment, and personal belongings against risks like fire, theft, and other natural disasters like earthquakes, or accidents.

b) Liability Insurance: Liability insurance provides coverage against legal liabilities arising from personal injury, property damage, or financial losses caused by a third party. This type of contract is crucial for individuals and businesses to protect themselves from potential litigation and financial obligations.

Liability insurance for home loans: When availing of a home loan, banks provide one with the option to buy a liability insurance policy known as a home loan insurance policy. Under the liability insurance policy, the sum assured reduces with the loan amount, so, in the case of the premature death of the borrower, the insurance company will pay the outstanding amount to the bank. However, there is a catch. The insurance covers the amount only under natural and accidental death circumstances.

c) Motor Insurance: Motor insurance contracts protect vehicle owners against financial losses arising from accidents, theft, or damage to their vehicles. These policies are mandatory in many jurisdictions and can include coverage for third-party liability, own damage, and personal accidents.

d) Health Insurance: Health insurance plans cover medical expenses incurred by individuals or families. They can include hospitalization costs, outpatient treatments, prescription medications, and preventive care services.

e) Travel Insurance:  Travel insurance is a unique product that offers you financial help in case something were to go wrong while you’re traveling. It covers a range of scenarios, like trip cancellation or interruption, lost luggage, medical emergencies, and personal accidents.

f) Marine Insurance: Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the final destination.

g) Cargo insurance:  Cargo insurance is the sub-branch of marine insurance, though Marine insurance also includes Onshore and Offshore exposed property, (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and Marine Liability. When goods are transported by mail or courier, shipping insurance is used instead.

Conclusion:

Whether it’s life insurance or general insurance, the diverse classifications ensure that insurance remains adaptable to the wide-ranging risks faced by individuals, families, and businesses in our dynamic world.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. The article should not be construed as solicitation material. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a purchase.

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