Insurance

INSURANCE

Insurance: It means that securing/protecting anything against uncertainty.

Insurance in India had a long history and started early during 1818’s with the introduction of Oriental Life Insurance by Anita Bhavsar from Kolkata to fulfill the needs of European community. Later in 1870, Bombay Mutual Life Assurance Society became the first Indian Insurer.

In 1912, Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business in India. In 1956, 19^th January Indian government issued an ordinance on nationalizing the Life insurance sector through Life Insurance Corporation Act, whereby all 245 life insurance companies operating then merged into one entity named Life Insurance Corporation of India (LIC).

Life Insurance Corporation of India (LIC) had monopoly till 1990’s and later 2000 onwards private companies landed in insurance setting a limit on FDI to 26% and which was increased to 49% in 2014

In 1972 the General Insurance Business Act was passed by the Indian Parliament and consequently, general insurance business was nationalized with effect from 1^st January 1973, there by nearly 107 small insurance companies were amalgamated and formed into 4 subsidiary companies namely:

• National Insurance Company Ltd
• New India Assurance Company Ltd
• Oriental Insurance Company Ltd
• United India Insurance Company Ltd.

According to IRDA (Insurance Regulatory Development Authority)  figures, Indian people are insured only up to 4-5%, this is very low to that of developed countries like the US where 50-60% of the people are covered under insurance. However India has seen more than 10 fold rise in Insurance for the past 1 decade. In India many people do take insurance only to avoid paying taxes on their income rather than lacking the original truth of securing their life.

Insurance can be divided into 2 types:

Life Insurance: Deals with Life of an Individual or family or Group where sum assured can be paid on death or end of policy tenure e.g. Whole life Insurance, term Insurance etc,

General Insurance: Deals with materials for any damage or collapse, where only cost incurred is paid on uncertainty and not on death e.g. Health Insurance, Motor Insurance etc.

Differences between Life and General Insurance:

1. Life risk of an individual is covered by Life Insurance, whereas life risk is covered by General Insurance, i.e., fire, motor, etc.
2. Life Insurance works as savings cum investments deal on the contrary, General insurance is a contract of Indemnity for a specified period.
3. Life insurance is a long term contract, whereas General Insurance is a short term and needs to be renewed on a yearly basis.
4. The sum assured is paid to insured persons at maturity or any uncertain events in case of Life insurance, while sum assured is paid only at the uncertain events in case of general insurance.
5. In Life insurance premiums had to be paid at regular intervals based on client’s convenience. In General insurance premiums had to be paid at once.
6. Life insurance can be taken at any sum assured value with the policy holder capability, whereas General insurance sum payable only to the extent loss suffered regardless of the policy amount.

LIFE INSURANCE

It’s a mean of providing protection against something going wrong and also serves a as saving tool if nothing happens till maturity.

Life insurance is a contract between an insurer and a policyholder where a particular sum assured is paid in exchange for premiums to that sum assured value. These are paid if the death occurred before maturity or at the time of maturity.

In the Insurance, we are aware of that amount is paid only on the happening of the uncertain event. Moreover there are different plans which are mainly categorized into 3 types, followed as below:

• Whole Life Insurance: The amount is paid to the nominee or the legal heir only at the time of death irrespective of maturity period.
• Term Life Insurance: The amount is paid to the nominee, if the insured passes away before the expiry of the specified term. If the insured person is still alive after the maturity then he or she will get nil.
• Annuity: The amount is paid to the insured person after the maturity as a lump sum or monthly OR to the nominee after the death of the insured person if any uncertain event happens before maturity.

There are legal limitations upon the insured events in terms of contracts except claims relating to suicide, fraud war, riot and civil commotions.

Life Insurance contracts fell into two major divisions:

Protection policies: Especially designed to protect life by getting a lump sum in case of life threatening events This is really a protection tool other than saving mechanism e.g. Term insurance

Based on the contracts and policy amount involved upon term insurance the premiums are paid as lump sum or through regular premiums with the client’s flexibility. Term policies offer peace of mind with affordable premiums based on life cover. Premium amount changes with the add on benefits like accidental, terminal illness and critical illness benefits etc.,

Investment policies: The main objective of these policies is to get some returns and to facilitate the growth of capital by investing in lump sum or paying regular premiums e.g. capital appreciation policies.

Insurance contracts are designed to meet client’s specific needs and thus they have many features like protection and saving simultaneously which are not found in others savings and investment tools.

General features of insurance Policies: The insurance is a contract or agreement between insured and insurer that promises to pay benefits to insured or their nominee in case of uncertain events. Insurance is said to be fixed, meaning to say with legal contract which do not make material changes to it in later periods once entered.

There are some common characteristics insured by the companies with respect to risk involved.

For the common understanding, insurance companies operate through pooling of money from the individuals in the form of premiums and a lump sum is paid to insured in uncertain events or at maturity. So, only a minimal % is happens for uncertainty and lump sum is paid by adjusting among all the premiums.

The event that happens to be unexpected or outside the control of insured person. Then only the insured person will get the benefit.

The loss happened to the insured should be big in absence of him and should be reliable.

The premium is decided with the calculations that should cover the expected cost of losses plus the cost of issuing the administering with respect to policy.

Insurable losses are ideally independent and non-disastrous. It means losses do not happen all at once therefore insurers will not go bankrupt.

Tax Benefits:

Life Insurance is a best and 1^st reminded option for saving tax as the amount paid as premium and amount received as lump sum after maturity both are eligible for tax deductions under 80c, 10D respectively.

Benefits available under Sec80c of Income Tax Act:

The premiums paid for the insurance is available to show for deduction under Sec 80c up to the limit of 1.5 lakh per annum and also add on the premiums paid to the spouse and children can also include in Rs.1.5 lakh.

Benefits available under Sec10 (10D) of Income Tax Act:

Apart from saving tax on premiums paid on the policy, the maturity amount received or the death benefit received is fully exempted under sec 10 (10D). There is no upper limit how much amount the maturity amount is or the death benefit would be.

GENERAL INSURANCE

General Insurance is a contract that covers any risk apart from the life risk. This category of insurance usually covers all forms of insurance like insurance of property against fire, theft, flood, storm, earthquake and personal insurance (health, travel, accidents and legal liability insurance etc). Some other types of products also include insurance against errors, omissions for professionals, credit insurance.

Main catch-up points in General insurance:

General insurance is the policy will be for fewer years when compared to that of Life insurance say most of the policies for1 year and some extreme products will have for longer term, so renewal is required every year.

Just like in term insurance the policy will expire and pay nothing to the insurer if the policy period closes.

The premium paid also will be very less as the payment is made only in uncertainty cases.

Types of General Insurance are:

• Fire insurance
• Health insurance
• Home insurance
• Motor insurance
• Travel insurance etc.,

Fire Insurance: This insurance covers any risk or loss caused to the property due to fire.

• Policyholders will get the policy amount for the losses or damage caused by the fire and its sources like electricity- short circuits, faulty wiring and explosions caused by wiring.
• Coverage depends on the level of loss caused by the fire and its sources regardless of the fire originating from inside the home.
• The policy will reimburse the insurer on the replace-cost basis or an actual cash value basis for damage.
• The losses are paid by the company based on the market value. Usually the losses are covered for at least 50-70% of the policy value and these are also dependent on the luxury items such paintings, jewelry, gold etc.

Motor Insurance: The insurance of vehicles is covered under Motor Vehicle Act a1988, as per this act insurance is mandatory in India and needs to be renewed every year. These could be of two types 2wheeler and 4wheeler.

• Driving a vehicle without insurance in public places is punishable and attracts penalty.
• Motor insurance covers all types of damages and liability to a vehicle against various “On-road and Off-road”. These plans also secures against damages caused by natural and man- made calamities.
• Insurance is also payable to the “third party liability” against the owner of the vehicle. In fact, third party insurance is a legal requirement i.e., the owner is responsible for injury or damage caused to the third party’s life or property caused by use of the vehicle in a public place.
• A Comprehensive motor insurance policy would include both personal accidents and the damage caused to the third party.
• Some common motor insurance include: car insurance, two wheeler insurance and commercial vehicle insurance.
• Motor insurance smart benefits are it gives roadside assistance, cashless servicing at nationwide network of workshops and garages.

Health Insurance:  Any risk or health problem to the policy holder or his/her family members from accidents or disease is covered under Health Insurance.

• Being changed in the sitting lifestyle, stress at the workplace and increasing in the cost of health care had resulted in the medical emergencies and necessity of health insurance policies. Health insurance policy is the only way to compensate for the financial crisis at the time of illness. It provides a policy holder to be cool and peace minded and helps in securing his and family health.
• Common types of health insurance include individual health insurance, comprehensive health insurance, family floater health insurance, term insurance and critical illness insurance.
• Medical and Surgical expenses are covered under insurance where an individual is hospitalized due to illness. Apart from this additional riders are also available to get extra benefit.
• Health insurance facilitates policy holder to go by cashless at empaneled hospitals for pre and post hospitalization expenses, ambulance charges, etc.,

Travel Insurance: Travelling to a place for vacation or on business purpose may turn into a frightening experience like loss of baggage, loss of personals, and delay in flight etc. Such events will surely take away our happiness and also cause extra tension.

• To compensate our requirements in case of such scenarios travel insurance plays a support role on back to ensure a worry free travel experience and helps to be relaxed and covers the damage.
• Travel insurance can be set into- Individual travel policy, Family travel policy, Senior citizen travel policy etc.
• In addition to the above, some companies offer special plans with cash back offers, discounts and gift vouchers to attract clients.

Home Insurance: Home is the most valuable and prestigious asset in case of any individual and family.

• Home insurance covers the loss caused to the home and its contents from any uncertainty depending on the scope of insurance policy opted.
• Home insurance covers the home against natural calamities, man-made disasters and threats.
• Home insurance also provides protection against risks and damages from the fire, theft etc.,
• Home insurance ensures one’s hard earned savings and keeps secured in case of any uncertainty.

Claim Process for the General Insurance:

• Every Insurance company gives its best to settle the claim as growth of the companies and product selling mainly depends on the claim process. So, before proceeding to any insurance plan look at 3 factors-
• Claim settlement ratio: The total number of claims settled by the company to the number of claims filed in the financial year.
• Incurred claim ratio: The total amount spent on the claim process to that of premiums received from the policies by the insurance companies in the financial year.
• Claim settlement turnaround time: The time taken to settle the claim by the insurance company from the date of filing the claim.

Tax Benefits available with the General Insurance:

• There are many forms available in General Insurance, but only ‘Health Insurance’ is allowed to get tax benefits under section 80D of Income Tax Act 1961.
• The premium paid in the financial year is eligible for the tax benefit and can be claimed under sec 80D from the gross total income, if the age is below 60 years
• The eligible upper limit for the deduction is Rs.25,000
• If the policy is taken for both yourself and the parents, a maximum eligible limit is up to Rs.50,000 that qualifies for deduction under income tax act.