Types of Insurance in India —Explained Simply
Most people do not have an insurance problem; Rather, they have an insurance understanding problem. Choosing the right insurance policy means knowing the different types of insurance in India, comparing their coverages, and selecting a policy that best aligns with your health and financial requirements.
Life Insurance
Health Insurance
Motor Insurance
Travel Insurance
To begin with, know that there are two broader categories of insurance:
Life insurance
Financially safeguarding your family in your absence.
General insurance
Covering non-life risks.
Understanding the role of each type of insurance is the first step in choosing the right coverage. This guide explores the types of insurance in India, the key features, and how they meet the varying needs and demands.
1
Life Insurance
A legal agreement between a policyholder (the insured) and an insurance company (the insurer), life insurance is the most common type of insurance policy available in India. Under these kinds of insurance policies, the insured has to pay a pre-determined premium monthly. In exchange for the premium payments from the policyholder, the insurer assures a lump sum payment based on the conditions pre-specified in the policy document.
Here are the three major types of life insurance in India:
Term Insurance
The most affordable type of life insurance plan, term insurance, offers a high lump sum payout. This amount is given to the beneficiaries/nominees in the event of the policyholder’s death within the policy term.
Key Features:
- Characterised by low premiums and high payouts
- Provides the death benefit on the passing of the policyholder within the active term
- Length of the term can range from 10 to 40 years
- Policies can be renewed or converted into other types of plans
Best-Suited For:
- Self-employed professionals with business liabilities
- Young people starting a family
- Individuals with expanding families
- Individuals with home loans, mortgages, and other types of debt
Endowment Plans
Endowment plans combine features of a life insurance plan, such as a death benefit, with a savings tool. This means that in the event of the policyholder’s death, their nominee(s) receive a death benefit. If the policyholder survives the term, they receive a maturity amount.
Key Features:
- Provides a sum assured or lump sum payout in case of the death of the policyholder
- Provides a maturity payout, along with bonuses (if pre-specified), if the policyholder survives
- Allows the policyholder to choose the frequency of their payments (like monthly or yearly)
- Offers financial predictability and focus on protecting invested money; therefore, a low-risk instrument
Best-Suited For:
- Individuals who need financial protection and savings
- Professionals or families with low risk tolerance
- People with expanding families and dependents
ULIPs
Unit-Linked Insurance Plans combine investment with insurance. In these products, part of your premium payment is invested in market-related funds (equity, debt, hybrid). The other half goes into providing insurance cover.
Key Features:
- Policyholders can choose from multiple fund options or switch them based on preferences
- Allows policyholders to withdraw funds after the completion of a 5-year lock-in period
- Enables policyholders to invest additional funds through a top-up premium facility
- Allows policyholders to customise plans through riders, based on their needs
Best-Suited For:
- Professionals seeking dual benefits of investment and insurance cover
- Seasoned investors with financial milestones
- Individuals and families with high risk tolerance
2
Health Insurance
Health insurance policies provide financial protection against health-related expenses. It’s an agreement between the insured and the insurer, where the former pays a regular premium to safeguard themselves against out-of-pocket expenses during a medical crisis.
Take a look at the different insurance types explained:
Individual Health Insurance
Individual health insurance plans provide coverage for a single person. That means, when you (the insured/policyholder) fall sick or end up facing a medical crisis, the policy covers your medical bills. These plans do not cover family or spouses.
Key Features:
- Provides comprehensive coverage and caters to individual medical expenditure needs
- May cover inpatient hospitalisation, day-care treatments, OPD consultations, ICU charges, organ transplant, and more
- Cashless facility and no upfront payments; in case of hospitalisation, bill payments are tackled by the insurance company
- May come with preventative health check-ups for early spotting
- Does not cover cosmetic surgery, self-inflicted injuries, treatments for drug abuse, and similar conditions.
Best-Suited For:
- Young professionals seeking low premiums but long-term policies
- Individuals with chronic conditions or in need of medical care frequently
Family Floater
Family floater health plans provide coverage for all the members in a policyholder’s family. The individual, their spouse, parents and children are typically financially protected in case of an illness or serious health diagnosis in any of them.
Key Features:
- Covers medical expenses for all family members included in the policy
- Provides cashless treatment at hospitals in case of inpatient hospitalisation
- Covers hospital room rents and ambulance costs
- Allows the addition of riders and add-ons to the base policy
- May come with age-based limits for renewing the policy
Best-Suited For:
- Young couples with a single child or an expanding family
- Families with healthy lifestyles
- Families seeking affordable premiums with broad coverage
Top-Up and Super Top-Up Plans
Top-up and super top-up plans activate once your base mediclaim policy or health insurance plan has been exhausted. Top-up plans are suitable when you incur high medical expenses occasionally, while super top-up plans are ideal if you need to file claims often.
Key Features - Top-Up Plans:
- Provides additional coverage without increasing premium costs
- Comes with a deductible clause where medical expenses are automatically covered once you exceed a specific limit
Key Features - Top-Up Plans:
- Covers all additional yearly medical expenses once you’ve exceeded the limit of your base policy
- Offers enhanced protection in case of frequent hospitalisation or chronic conditions
Best-Suited For:
- Young professionals with low claim frequencies seeking enhanced protection
- Individuals looking to supplement their base mediclaim policy
- Individuals seeking high-risk coverage after a major diagnosis
Critical Illness Insurance
This type of insurance in India covers lifestyle diseases and conditions that are of a terminal nature or require urgent attention. It helps cover the medical expenses incurred in treating critical ailments.
Key Features - Top-Up Plans:
- Provides medical cover for a range of life-threatening diseases, including cancer, kidney diseases, and strokes.
- Provides a lump sum payout to cover initial medical treatment after diagnosis
- May aid in covering expenses beyond hospitalisation and treatment
- May come with a waiting period and a survival period for filing claims
Best-Suited For:
- Young professionals with expanding families
- Breadwinners diagnosed with critical illness
- Individuals with high health risk or genetic diseases
3
Motor Insurance
Among life health motor travel insurance, motor insurance is the only type that isn’t optional. The Motor Vehicles Act, 1988, in India makes motor insurance mandatory for every vehicle owner in the country. It ensures that if an accident occurs or your vehicle causes damage to a third party, legal liabilities and expenses related to property damage, injuries, and death remain covered.
Here’s a breakdown of the two types of motor insurance:
Third-party Motor Insurance
It covers damages caused to a third-party individual or their vehicle by the insured vehicle. These types of insurance in India do not cover damages caused to the policyholder of the vehicle.
Key Features - Top-Up Plans:
- Covers repairing costs for damages caused to a third-party vehicle
- Covers personal damage caused to the third party
- May provide coverage for damages caused to the policyholder if a personal accident cover has been added to the policy
Best-Suited For:
- All vehicle owners of two-wheelers, three-wheelers, cars, jeeps, and commercial vehicles.
Comprehensive Motor Insurance
Comprehensive insurance provides extensive coverage against various types of road risks. It covers damages caused to a third party due to the insured vehicle, as well as the insured vehicle and the vehicle owner.
Key Features - Top-Up Plans:
- Covers repairs and replacements in case of a partial or total loss of the vehicle
- Covers damages caused by the insured vehicle to a third party or their vehicle
- Covers medical expenses and offers personal accident coverage in the event of injuries or death of the vehicle owner
- Comes with cashless claim settlement that enables vehicle owners to get the insured vehicle repaired at a network garage near them
- Entitles policyholders to a No Claim Bonus for every claim-free year
- Can be enhanced with add-ons such as zero depreciation cover and roadside assistance cover.
- Does not cover damages caused by driving under the influence or driving without a license.
Best-Suited For:
- Individuals with new vehicle purchases
- Owners of expensive or high-asset vehicles
- Vehicle owners in areas with high road risks
- Commuters who use their vehicle for daily use
4
Travel Insurance
Travel Insurance
Travel insurance policies act as a safeguard against unexpected circumstances when you’re travelling. Depending on your insurer, it may provide coverage ranging from travel delays to unforeseen medical emergencies, loss of luggage, and more.
Key Features - Top-Up Plans:
- Covers trip cancellations, missed flights and helps you get reimbursements
- Provides coverage for health emergencies or injuries during the trip
- Compensates for loss of luggage
- Covers costs incurred when your belongings are misplaced to pay for necessary items
- May relieve financial strain due to travel-related risks such as natural disasters
Best-Suited For:
- Individuals who travel often or have a travelling job
- Individuals planning high-budget, long trips
- People visiting high-risk destinations
- Elderly travellers going on long trips
5
Home Insurance
Home Insurance
These types of insurance in India provide coverage for damages caused to your home due to natural or man-made disasters. Intentional or voluntary damage to the structure, however, is not covered. Coverage is determined based on the cost of building, the value per square foot, and depreciation factors.
Key Features - Top-Up Plans:
- Covers damage caused to the structure due to floods, earthquakes, cyclones, and other natural disasters.
- Covers damage caused to the structure due to artificial factors such as civic disturbances and terrorism
- Provides coverage for risks like leakages, pipe bursts, and other issues
- May not cover damages caused by wilful destruction, electrical failures or lack of occupancy.
Best-Suited For:
- Individuals who purchased a new property or are new homeowners
- Landlords renting their personal property to tenants
- Individuals with home loans and mortgages
The Insurance You Most Certainly Need
Any individual thinking about signing up for a new policy needs to pay special attention to two types of insurance in India: health insurance plans and term life insurance.
1
A health insurance policy keeps you and your family safeguarded against lengthy medical bills
2
A term life insurance plan acts as income replacement in the event of your passing, shielding your family against financial strain
Every other plan can be opted for or added to enhance overall coverage based on the policyholder’s unique risk tolerance.
Frequently Asked Questions
Will health insurance pay for liver cirrhosis?
A large number of health insurance companies may provide medical coverage for liver cirrhosis. However, it is generally considered a pre-existing condition and may require the policyholder to receive coverage after a specified waiting period.
How do I know what kind of insurance I need?
Understand the offerings by different insurance service providers and compare them with your coverage and financial needs. Check the insurer’s claim settlement ratio and review the inclusions and exclusions under the type of policy you’re looking to purchase. It helps you narrow down the options and opt for the most practical option.
Which life insurance is best?
The best type of life insurance policy differs between people. Based on your budget and coverage requirements, you can opt for term insurance, endowment plans, ULIPs, and money-back plans. Some of these options provide comprehensive coverage at low premiums, while others come with savings and investment components.
Will health insurance in India cover liver damage?
Typically, liver damage treatments may be covered under comprehensive health plans. Critical illness riders and add-ons also may provide enhanced coverage for transplants. Inclusions can feature inpatient and outpatient hospitalisation, room rents, and ICU charges.
What is not covered by travel insurance?
Loss or damage due to intoxication, damages caused due to expected events or pre-announced forecasts, and injuries from high-risk activities may not be covered by travel insurance plans. Read the policy document carefully to understand what remains excluded.
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