Insurance: Types of Insurance | UGC NET Commerce Preparation Course PDF Download

Life Insurance

• Life insurance is a policy where the insurance company agrees to insure the life of the policyholder.
• The insurer provides coverage in exchange for a premium that can be paid daily, monthly, quarterly, or yearly.
• It serves as a safeguard against life’s uncertainties.
• Life insurance is a contract between the insurer and the insured.
• The insurer agrees to pay a sum of money to the insured's beneficiary upon the insured's death or at the end of the policy term.
• To obtain a life insurance policy, the applicant must provide details such as age, medical history, and any smoking or drinking habits.
• People opt for life insurance for various reasons, including family needs, education, or retirement planning.

Some common types of life insurance policies include:

• Whole Life Policy: As the name implies, this policy ensures that the insured amount is paid out to the nominee only upon the death of the insured. Some whole life policies require premium payments for the insured’s entire life, while others may limit payments to 20 or 30 years.
• Endowment Life Insurance Policy: In this type of policy, the insurer agrees to pay a fixed sum to the insured either after a specified number of years or upon the insured's death.
• Joint Life Policy: This policy is taken by two individuals, with the premium paid jointly or separately, either in installments or as a lump sum. The assured sum is provided to the surviving policyholder(s) upon the death of one policyholder. This type of policy is commonly taken by spouses or business partners.
• Annuity Policy: Under this policy, the insured receives the assured sum in monthly, quarterly, half-yearly, or annual payments after reaching a specified age, as outlined in the policy document.
• Children’s Endowment Policy: This policy is taken by individuals who wish to ensure they can cover future expenses for their children's education or marriage. The insurer pays a certain sum to the children when they reach a specific age, as stated in the policy agreement.

General Insurance

General insurance covers various aspects of life, excluding life itself. This includes health, motor, fire, marine insurance, and other specialized types like cattle, sports, and crop insurance.

Let’s explore the different types of general insurance:

1. Fire Insurance: Fire insurance provides financial protection to the insured against losses caused by accidental fires within a specified time frame, as outlined in the policy. Typically, fire insurance policies are valid for one year and can be renewed annually by paying a premium, either in lump sum or installments.

To claim fire insurance, the following conditions must be met:

• The loss must be actual.
• The fire must be accidental, not intentional.

2. Marine Insurance: Marine insurance is a contract between the insurer and insured, offering protection against sea-related risks, such as ship collisions, pirate attacks, and ship fires. It encompasses three key areas:

• Ship (Hull) Insurance: Covers damage to the ship itself caused by various sea hazards.
• Cargo Insurance: Protects against risks such as theft or loss of goods during the voyage or at the port.
• Freight Insurance: Compensates the shipping company for freight charges in cases where cargo fails to reach its destination due to loss or damage.

Marine insurance operates on the principle of indemnity, allowing the insured to recover actual losses from the insurer.

3. Health Insurance:

• Health insurance helps mitigate rising healthcare costs by offering coverage against specified illnesses. This contract between the insurer and the insured, whether an individual or a group, ensures that medical expenses are either directly paid (cashless) or reimbursed post-treatment. In India, this is often available through Mediclaim policies. The premium can be paid in installments or as a lump sum, and the policy is typically renewed annually.

4. Motor Vehicle Insurance: 

• Motor vehicle insurance provides coverage to vehicle owners. It helps cover the owner's liability in compensating for injuries or fatalities caused by negligent driving, with the insurance company assuming the financial burden.

5. Cattle Insurance:

• Cattle insurance offers compensation to cattle owners in case of the animal's death due to accident, disease, or during pregnancy.

6. Crop Insurance:

• Crop insurance provides financial assistance to farmers when crops fail due to natural calamities like drought or floods.

7. Burglary Insurance:

• Burglary insurance, which falls under property insurance, compensates the insured for losses or damage to personal property due to burglary, theft, or larceny.