Article

Types of Insurance Policies
September 12 , 2012

There are two types of insurance policies: life insurance policies and non-life (general) insurance policies.

Life insurance

Life insurance covers risks to human life. Life insurance policy is a contract between an insurer and the insured by which the beneficiary gets a sum of money at the event of death of the insured, if death occurs within the term of the contract. For this the insured pays premiums to the insurer.

Pure life insurance provides protection against loss of income for the insured's dependants. There is zero survival benefit. They are called as term policies. Term insurance policies are cheapest and one good term cover is all one needs to take care of his/her protection needs.

Apart from the type of life insurance policy mentioned above, there are a host of other policies that combine insurance with savings or investments. They can be divided into ulips, traditional policies and annuities. Unit linked insurance plans are market-linked products. Life insurance component in these is minimal. Traditional policies offer savings along with protection. A huge chunk of the premiums paid goes into debt securities. Returns on traditional policies are too low to make them desirable, yet ironically they are the ones that used to sell most.

Non-life insurance

General insurance covers all other risks, barring risks covered under life insurance. It covers risks to assets that either give us monetary returns or convenience. Exception to this is health insurance and personal accident insurance, which cover risk to human life. Thus non-life insurance covers medical insurance, motor insurance, home insurance, travel insurance, personal accident policy and all other policies you will ever come across. Non-life insurance also covers business insurance policies.

Insurance plans can also be classified as individual plans or group plans. Life insurance, motor insurance, home insurance are usually available as individual plans. Health insurance plans can be bought individually or to cover all family members. Travel insurance policies can also be bought as family floater. There are business insurance policies that allow employers to cover all their employees.

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