Unit 4- Insurance

CONTENTS

1. Meaning

2. Types of Plans

3. Benefits of Life Insurance

4. Brief about Public and Private Sector organizations

offering Insurance Products.

 Meaning of Insurance
Insurance is a contract, represented by a policy, in which a
policyholder receives financial protection or reimbursement
against losses from an insurance company.

The company pools clients’ risks to make payments more

affordable for the insured. Most people have some insurance:
for their car, their house, their healthcare, or their life.

Insurance policies hedge against financial losses resulting

from accidents, injury, or property damage. Insurance also
helps cover costs associated with liability (legal responsibility)
for damage or injury caused to a third party.
Definition of Insurance:

Insurance is a contract between an individual or business and an

insurance company to protect against financial loss from
unexpected events. In exchange for regular payments called
premiums, the insurance company agrees to compensate the
insured party if a loss occurs.

The two parties in an insurance contract are the insurer and the
insured:

Insurer: The insurance company that agrees to compensate

the insured for a specified event.

Insured: The person, business, or entity being insured.

 Types of Insurance
Insurance is a legal contract between a person and an insurance
business in which the insurer promises to provide financial protection
(Sum guaranteed) against unforeseen events for a certain price
(premium).
The many types of insurance plans available today may be grouped
into two groups : Life Insurance and General Insurance.

1. General Insurance
Some of the kinds of general insurance offered in India are as
follows :
Health Care Coverage
Automobile Insurance
Homeowners' Insurance
Insurance against fire
Insurance for Travel
2. Life Insurance:
Life insurance comes in a variety of forms.

The most prevalent types of life insurance policies offered in

India are as follows :

Term Life Insurance

Unit-Linked Insurance Plans
Whole Life Insurance
Endowment Plans
Child Plans for Educations
Retirement Plans
General Insurance:
General insurance plans are one of the types of policies that provide
coverage in the form of sum assured against damages besides
the policyholder's demise. In general, general insurance refers to a
variety of insurance plans that provide financial protection against
losses caused as a result of liabilities such as a bike, automobile,
house, or health.

The following are examples of several types of general

insurance policies :

A. Health Care Coverage:

Health insurance is a form of insurance policy that covers the costs
of medical treatment. Health insurance policies either cover or
repay the cost of treatment for any included disease or injury.
Various forms of health insurance cover a wide range of medical
bills.
It typically provides defense against :
1. Inpatient care
2. Critical illness treatment
3. Post-hospitalization medical bills
4. Procedures for day-care
A few types of health insurance policies also cover resident care and
pre-hospitalization costs. The following are some of the several
types of health insurance policies available in India :
1) Individual Health Insurance:
Provides coverage to a single person.

2) Family Floater Insurance:

This type of insurance allows your complete family to be covered
under one policy, which often includes the husband, wife, and two
children.
3) Critical Illness Coverage:
A sort of health insurance that covers a variety of life-threatening
illnesses such as stroke, heart attack, renal failure, cancer, and
other comparable conditions. When a policyholder is diagnosed
with a serious illness, they get a lump sum payment.

4) Senior Citizen Health Insurance:

These insurance policies are designed for people over the age of
60.

5) Group Health Insurance:

This is a type of insurance that a business provides to its
employees.
B. Automobile Insurance:
Motor insurances are forms of insurance that provide financial
help in the event that your automobile is involved in a crash. In
India, there are several types of motor insurance coverage
available, including :

1) Car Insurance:
This plan covers privately owned four-wheelers. There are two
kinds of automobile insurance plans: third-party insurance.
2) Bike Insurance:
These are forms of automobile insurance that protect privately-
owned two-wheelers in the event of an accident.
3) Commercial Vehicle Insurance:
A sort of automobile insurance that covers any vehicle utilized for
commercial purposes.
C. Homeowners' Insurance:
A homeowner’s insurance, as the name implies, provides full
coverage for the belongings and infrastructure of your property
against physical destruction or damage. In other words, house
insurance protects you from both natural and man-made disasters
such as fire, earthquake, tornado, burglary, and robbery.
The following are examples of several types of house insurance
policies :
1) Home Building Insurance: (e.g. Your house, shop)
Serves to protect the house's foundation from destruction in the
event of a disaster.
2) Public Liability Coverage:(e.g. Hotels, Company, Restaurant)
Protects the insured residential property from any harm caused by a
visitor or third-party while on the premises.
3) Standard Fire and Special Perils Policy: (e.g. Warehouse)
Protection against fires, natural disasters (e.g., earthquakes,
landslides, and storms, and floods), and anti-social human-caused
activities (e.g., strikes, and riots)
Life Insurance:
Life insurance policies provide protection against unforeseen
circumstances such as the policyholder's death or incapacity.
Aside from providing financial security, many types of life insurance
plans enable policyholders to optimize their savings by making
recurring payments to various equity and debt fund alternatives.
You may get a life insurance policy to protect your family's financial
future against the ups and downs of life. The insurance coverage
includes a substantial sum that will be paid to your loved ones if
something occurs to you. Based on your financial needs, you may pick
the length of the life insurance policy, the amount of coverage, and the
payment choice. The following are the many types of life insurance
policies :1.Term Life Insurance
2.Unit-Linked Insurance Plans
3.Whole Life Insurance
4.Endowment Plans
5.Child Plan for Educations
6.Retirement Plans
1. Term Life Insurance:

Term insurance is the purest and most inexpensive type of life

insurance, allowing you to choose a high level of coverage for a
certain period of time. With a low-cost term life insurance policy,
you can protect your family's financial future (term insurance plans
generally do not have any cash value, and thus, are available
at lower rates of premium as compared to other life insurance
products.)

If you die within the policy time, your nominees will get the agreed
sum Assured, depending on the payment type you choose (some
term insurance plans offer multiple payout options as well)
2. Whole Life Insurance:

Whole life insurance plans, often known as 'conventional' life

insurance plans, give protection for the policyholder
individual's complete life (typically till age 100), as opposed to
any other type of life insurance that only provides coverage for a
set number of years.

While a whole life insurance policy pays a death benefit, it also

has a savings component that helps the policy accumulate cash
value over time. Whole life insurance policies have a 100-year
maturity period. If the insured person survives beyond the
maturity age, the entire life insurance policy becomes a matured
endowment.
3. Endowment:

Endowment plans fundamentally give financial protection

against life's risks while also allowing policyholders to save
consistently over a certain length of time. If the policyholder
survives the policy term, the endowment plan matures, and the
policyholder receives a lump sum payment.

If something occurs to you (as the life insured), the life insurance
endowment policy pays your family (beneficiaries) the whole sum
assured.
4. Unit-Linked Insurance Plan (ULIP):

ULIPs are insurance policies that combine investment and

insurance advantages into one contract. A portion of your
payment for a Unit Linked Insurance Plan is invested in a range
of market-linked equities and debt instruments.

The leftover premium is used to provide life insurance coverage

for the duration of the policy. ULIPs provide you with the
freedom to allocate premiums to different instruments based on
your financial needs and market risk tolerance.
5. Plans for Children:

Child plans are life insurance policies that assist you in

financially securing your child's life goals, such as higher
education and marriage, even if you are not there.

To put it another way, child plans combine savings and

insurance benefits to help you prepare for your child's future
requirements at the appropriate age.

The money obtained on maturity can be utilized to help your

child meet his or her financial needs.
 PENSION PLANS
What is a Pension Plan?
It is an investment plan offered by life insurance companies to help create
retirement funds. The plan provides a pre-specified and regular pension,
preventing financial shortfalls in post-employment years.

Types of Pension Plans

1. National Pension Schemes (NPS):

The National Pension Scheme is backed by the Government of India and
regulated by the Pension Fund Regulatory and Development Authority of
India (PFRDA). It can be used by private, public and unorganised sector
employees to save for their retirement.
NPS allows you to invest in equity and debt funds. The rate of return
can vary based on the funds you choose to invest in.
The scheme matures at the age of 60, after which you can withdraw up to
60% of the balance in a lump sum if the total amount is more than ₹ 5
lakh. 40% of the remaining balance must be used to purchase an
annuity from a PFRDA-empanelled life insurance company. If the total
amount is up to ₹ 5 lakh, you can withdraw up to 100%.
2. Employee Provident Fund (EPF):

The Employees’ Provident Fund is another government-backed

pension scheme offered by the Employees Provident Fund
Organisation (EPFO).

It can be used by employees in the public and the private sectors.

In this, both the employee and the employer make contributions
towards the employee's EPF account. The total contribution is
24% of the employee's basic salary and dearness allowance,
with 12% contributed by the employee and 12% contributed by
the employer.

EPF is a retirement scheme meant to be used after you retire,

however, you can withdraw your funds prematurely in some
cases, such as unemployment or to cover education or marriage
expenses, among other things.
 IMPORTANCE OF INSURANCE
Why is Insurance Important?
Insurance works like a cushion which helps you or your family
bounce back financially after an unfortunate event. Whether it's
business or family, both can benefit immensely from insurance.
1.Distributes Large Risks: Insurance is a financial instrument. The
risk of significant loss due to an event is borne by a large group of
people exposed to the same possibility in a business. Thus, the losses
are distributed over a large group, making it bearable for each
individual.

2.Provides Financial Stability: Without insurance, it will be

extremely costly for businesses to bounce back after a major loss
of inventory. Natural hazards, accidents, theft or burglary can affect
the financial status of a business or a family. With Insurance
compensating a large part of the losses, businesses and families
can bounce back rather easily.
3. Helps Economic Growth: Insurance companies pool a large
amount of money. Part of this money can be invested in support of
government investment activities. Due to safety concerns, insurers
only invest in Gilts or government securities. On the other hand,
governments can raise funds easily from insurers for large public
projects, which aids in economic growth.

4. Generates Long-Term Wealth: Insurance is often a long-term

contract, especially life insurance. Life insurance plans can
continue for more than three decades. Within this time, they will
collect a large amount of wealth, which will be returned to the
investor if they survive. If not, the wealth goes to their family.

5. Need for Insurance: Insurance is an essential financial tool that

helps manage unforeseen expenses smoothly and without much
hassle. However, this is not the only reason a person needs insurance.
Listed below are a few more reasons you need to buy an
insurance:
1. Tax Benefits: Any payments received from life insurance plans
are completely tax-free if your investments have met a few simple
conditions. Most life insurance premium payments and
investments are tax-deductible. Thus, insurance reduces your tax
liability in the present and future.
2. Achieve Retirement Goals: Insurance plans like guaranteed
savings plans and ULIPs are some of the best retirement saving
options available. You can also use deferred annuity plans to
safeguard your post-retirement income when you are close to
retirement.
3. Stress-Free Life: With the right insurance plan, you can remain
stress-free from unforeseen risks causing major financial damage.
Insurance will help you and your family return to your normal
financial life quickly after a mishap. Insurance also keeps your
long-term investments safe from sudden financial shocks caused by
emergencies.
 Example of Insurance:
Visit any insurance company website and choose the most preferred insurance
plan and mention it’s minimum eligibility details and conditions whenever asked
in exam.

For e.g. Name of Policy, Tenure, Premium for different age group, benefits
covered, exclusions, Eligibility for that policy, Riders if any availble,etc.

Prepare any two insurance policies of both types-

1. Life Insurance (Any 2 policies)

2. General Insurance (Any 2 policies)
THANK YOU