Insurance is the offer of a guarantee, represented via a contract and governed by its policy, wherein the individual or the entity being insured is entitled for a compensation against losses agreed upon in the given policy contract.

As a simple example, let’s consider the case of Raj. He buys a term life insurance for himself for INR 50 lakhs value. He paus a premium of INR 6000 per year for the same. As long as Raj continues to pay the premium each term, the insurance policy guarantees (subject to terms and conditions outlined in the policy document) that in the unfortunate event of Raj’s demise during a particular term when the policy is active, Raj’s nominee shall be paid the sum equivalent to the insured value, i.e., INR 50 lakhs. That is Raj’s life insurance policy.

In another example, we can take the case of Raj’s insurance policy on his car. As long as Raj continues to pay, in any active term (premium paid in advance), should his car undergo any damage (as per agreed upon terms and conditions in the policy document), the insurance company will pay for the repairs in accordance with the amount of the policy as well.

Ever wondered how can an insurance company pay large sums to you as the insured while you pay just a small amount each term? It’s not difficult to understand but surely is a complex undertaking.

Spreads risk, to community. Insurance companies make money because the evaluate the risk and decide that it’s worth the gamble.

Simply put, it’s the distribution of risk to a large set of people and entities, and a scientific understanding of the probability of payouts. In case of Raj mentioned above, he is 35 years old and healthy. His probability of an unfortunate demise is miniscule. And as actuarial calculations and past history show, most people do not die at all in the insurance term, or die very late into their lives. This ensures that the insurance company collects more money than it has to disburse in most situations. It also ensures they are able to keep their end of the bargain even in cases where their risk-calculations go wrong.

On top of that, the money pooled by the insurance company is not kept lying in their bank accounts. They are put into lucrative investments and managed by financial experts. In a good economy, this money is set to grow over significant periods of time, thus allowing the company to honour claims, as well as stay financially healthy.

Life is fickle. We do not know what is in store tomorrow for us.

Much rides on each of us, particularly those who have a clear economic value in the family. The breadwinners’ demise can be huge shock. Of course there is no remedy to the personal sense of loss that ensues. However the economic shocks can and must be minimized to the largest extent possible. Not all of us are endowed with large estates and properties that could take care of our families after us. So insurance is the best way to make life as comfortable for our family as possible after we are gone. And this economic loss is not a consideration only for people engaged in the conventionally understood economic activities, it applies to even to housewives, for there is an unrealized and unpaid economic value to what they do day-in and day-out. It’s for children too, for there is always a probable future economic value attached to them. We can never be too confident. But we can be responsible

But it’s not just life insurance that’s so important. Your health is equally important. As we progress in the 21st century, cost of healthcare is rising really fast. If not insured, sudden hospitalization can take a heavy toll on our finances and render us helpless in many cases. A health insurance policy for ourselves, parents, children et al can go a long way in bringing about a peace of mind and confidence that we can tide over any challenge thrown by life at us.

This sense of confidence that insurance brings extends to our possessions like house, car, appliances etc. too. All these possessions have a disproportionate value attached to them. A loss arising out of any situation can take its heavy toll if not tempered by insurance.

So in summary, Insurance lends us a sense of confidence in our existence and lets us strive for excellence and progress without worrying unduly about unfortunate events that life presents from time to time.

Term Insurance
  • It is the purest and the most basic kind of insurance.
  • As the name suggests, it covers your life for a specific term, without any additional bells and whistles
  • In the unfortunate event of your demise during the insured term, your nominee receives the entire coverage amount
  • If you survive the term, you or the nominee do not receive anything and the policy expires
For details see
Whole Life Insurance
  • As the name suggests, a Whole life insurance policy covers you for your entire life
  • Like in case of pure term plans, your nominee receives the coverage amount in the event of your unfortunate demise
  • Additionally, your nominee is also entitled to a bonus that that accrues on your coverage amount
  • For the extra benefits over a pure term plan, Whole life plans often cost more per unit of coverage amount
For details see
Investment Oriented Insurance Plans
Endowment Policy
  • A lumpsum coverage amount will be paid to your nominee in the unfortunate event of your demise within the term of the plan while it’s active.
  • If you survive the term of the policy, you also get the maturity proceeds at the end of the term
  • Premiums are higher than term plans since a portion of your premium is set aside for offering you a life cover while another (usually higher proportion) is used for investments that are supposed to grow over longer durations and go towards the maturity benefits.
For details see
Money-back Policy
  • A certain percentage of the coverage will be paid to you throughout the term of the policy at periodic intervals
  • At the expiry of the term, if you survive, you get the balance amount as maturity proceeds.
  • Your nominee gets the entire coverage amount in case of your unfortunate demise during the policy term. This is in addition to the money paid to you during your life.
For details see
Unit-linked Insurance Plans (ULIPs)
  • In ULIPs, a certain part of your premium goes towards your insurance coverage
  • The remainder is invested in Debt and Equity markets
  • A lumpsum amount will be paid to your nominee in the event of your death during the term of the policy
For details see
Other Life Insurance Categories
Pension Plans
  • As the buyer, you pay a certain amount periodically, often monthly or yearly till you attain the age of 60
  • At age 60 (upon retirement), you get a certain amount every month as pension till death
  • Upon your unfortunate demise, your nominee gets a certain lumpsum payment and further pension pay-outs cease
  • In the event of your demise before retirement, your nominee gets a lumpsum coverage amount all at once. No periodic pension pay-outs are made
For details see
Child Plans
  • These plans are designed to ensure your child’s financial security and are often designed to aid in life goals such as higher education, wedding etc.
  • In the unfortunate event of your demise during the policy term, remaining premium is paid for by the insurance company, and your nominated child gets a lumpsum amount.
  • The child also continues to receive payment as per the original plan of the policy
For details see
Health Insurance
  • It covers the medical expenses that you are liable to incur upon hospitalization due to any injury or illness, either via cashless claim settlement or as a reimbursement
  • A few policies may also cover treatments outside of hospitals
  • Typically health insurance policies cover hospitalization, treatment of critical illnesses as identified in the policy document, medical bills pre and post hospitalization as per terms agreed upon in the policy document, and a few day-care treatments as identified in the policy document (wherein you are discharged from the hospital the same day as admission)
  • Pre-existing diseases are typically not covered in the first year when the policy is in force
  • Health insurance policies can be bought for:
    - An individual
    - A family. Typically known as family-floater plans, the coverage amount is flexible
  • Additionally health insurance policies may also include, and generally upon addition to the premium amount:
    - Maternity benefits (very few policies have this option)
    - Pre-existing diseases
    - Cover for treatment of Accident-induced injuries and ailments
For details see
Motor Insurance
  • An insurance policy to cover you against loss and damages to your motor vehicle due to accidents, theft, fire or natural disasters.
  • You can take motor insurance for your private 4-wheelers (cars, SUVs etc.), or your 2-wheelers (bikes, scooters etc.)
  • A firm can take commercial motor insurance for vehicles in their name
  • There are two types of liabilities that are covered in motor insurance policies:

    - 3rd party liability: This compensates for the damages caused to other individuals or their vehicles when involved in an accident with your vehicle. By law, this type of motor insurance is mandatory in India

    - Comprehensive plan: This includes 3rd party liability cover as well as for you and your own vehicle
  • Another way of classifying motor insurance (both 2-wheeler and 4-wheeler insurance ) is in the scope of their coverage:

    - Regular policy (with depreciation): This is the same as a Comprehensive policy as mentioned above. In this kind of motor insurance policy, the insurable value of your vehicle is calculated basis the depreciation caused due to the age and condition of the vehicle. Additionally, in this kind of policy, there are many exclusions, like generally plastic parts are covered only for 50% compensation.

    - Zero-depreciation policy: In this kind of motor insurance policy, the insured value of the vehicle is as per the original value of the vehicle when first sold by the manufacturer/retailer. In other words, you get a higher coverage value since the depreciated value of your vehicle is not considered when paying for damages. So the insurance company would pay for repair or replacement of all parts and accessories at their actual market value without considering their depreciation before damage. It includes 100% cover for all kinds of parts, including but not limited to bumpers, plastic parts, rubber parts, electric accessories etc. It does not cover certain aspects which are referred to as exclusions in the policy.
For details see
Home/Property insurance
  • Home insurance covers you for damage caused to your property on account of natural calamities, man-made disasters and other threats. It compensates for damages caused due to theft, burglary, fire, flood, earthquakes and sabotage.
  • t includes both the property and valuables inside
For details see
Fire Insurance
  • While property insurance covers you against fire damages to your property, a specific fire insurance can be for your property, as well as other valuables
  • It also covers for 3rd-party liability arising out of fire issues
  • It also covers for expenses of those who may have had a loss of livelihood due to the fire in question
For details see
Travel Insurance
  • Travel insurance compensates you or pays for any financial liabilities arising during the period of your travel, domestically or abroad
  • You can opt for either a single-trip policy (for up to 180 days at a stretch), or an Annual multi-trip policy
  • Among other things, it covers :
    - Loss of baggage
    - Emergency medical expenses
    - Loss of passport and other important travel document(s)
    - Delayed flights
    - Hijacking
    - Accidental death etc
For details on Travel insurance, see

Today and Now is generally the time to buy insurance. Having said that everyone’s situation is different and much consideration must be given before deciding to buy insurance.

When it comes to life insurance, all earning members of a family must be insured without any delay if they are young enough and healthy. In case they are not young anymore, a cost benefit analysis w.r.t. premium paid vs sum assured must be made, and the best policy should be chosen basis that.

In case of minors, try and get them insured as soon as they attain adulthood in order to enjoy the best premiums on offer. However you have more scope of deliberating here.

Similar considerations would be applicable to health insurance. Basis the health and age of a family member, the right insurance policy must be purchased without delay.

In case of motor insurance, 3rd party insurance is made mandatory by the government and you are required by law to purchase it if you own a vehicle. 1st party insurance must be purchased basis the perceived value of the vehicle, and its age.

Similar considerations of age and perceived value of a possession should decide their insurance worthiness.

Always buy insurance from a reputed govt authority approved insurance company. While the govt of the land ensures via regulations that all insurance companies work according to guidelines, we should be mindful of their history, claim fulfilment statistics, their policy terms and exclusions, as well as how a given policy compares with its competitors’ in the market. Only after this we should consider the friendliness, helpfulness and/or accessibility of the insurance agent. A bad agent may make a particular insurance policy difficult to work with, but a good insurance agent can definitely not salvage a bad policy. So always choose your policy and your agent carefully.

There are two kinds of insurance companies in India- govt undertakings like the LIC of India, and private entities like HDFC Life, Tata AIA etc.

What is important to note here is that all these companies are governed according to the regulations laid down by IRDAI in India. Many private insurance companies are joint-ventures between foreign insurers with long histories and reputed Indian corporate houses/banking and financial institutions. All of these companies are well-funded and closely monitored by the IRDAI for corporate and financial governance.

In this scenario, it’s reasonable to trust any of them. However do have a look at their history, claim settlement statistics, reviews and long-term market performance.

Please note that every insurance company has good and bad policies for your specific needs. In that scenario it’s important that you perform your due diligence and look for a capable and honest advisor. Choosing the right policy is more important than any question you may have regarding the trustworthiness of the insurance company as a general mater.

Every country has rules and regulations created by their respective governments and often a regulatory body authorized by the govt which oversees the business of insurance in that particular country and ensures that the incumbent players operate ethically and legally.

In India, insurance is governed by various acts of the parliament enacted both before and after the independence. The Insurance Act of 1938 was the first law in India which allowed insurance and related activities in the country. Thereafter the Life Insurance Corporation Act of 1956, The General Insurance Business Act of 1972 and the Insurance Regulatory and Development Authority Act of 1999 made various changes and brought about a robust governing mechanism for companies to operate in.

Under the Insurance Regulatory and Development Authority Act of 1999, India’s primary Insurance Regulator, the IRDAI (Insurance Regulatory and Development Authority of India) was formed.

IRDAI oversees, maintains and regulates the industry in India and ensures a level playing field for all insurance firms and allied firms to operate in legally, ethically and with transparency.