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what are the types of insurance available in india? top tax saving investment

Insurance which is more than just the literal meaning. If talk about Indian people, they don’t think about insurance much, until they have to. 

Literally, we refer insurance by a legal agreement between two parties. One party is called the insurance company (insurer) and the other part is individual (insured). In this agreement, insurer promises to insured to make good for the losses on happening of the insured contingency. Contingency is a broad term which includes a loss, death of the insured, damage/destruction of the property. Contingency is something which is uncertain regarding happening of the event. For the agreement done, insured will pay a sum for the premium. The agreement officially called the insurance policy. The insurance policy will include the details about terms & conditions. It also includes circumstances on the happening of which insurance company make for the losses. The amount paid by insurer is called the insurance amount either to the person or the nominees.

Insurance is a way of protecting yourself and your family from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid. The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance. This is why you get insurance for a big amount at a low price. The amount insured person asks insurance company to pay is called the claim and then the Insurance company after proper evaluation of the claim application. In India, Insurance is available in three broad categories, health and general.

Types of insurance available in India

  • Life insurance

Life insurance is insurance on your life. Life insurance provides a kind of financial security to your family. Your dependents are financially secured in case of any mishappening to you. Life insurance is more important for people who are the only earner in the family. It is useful for the dependants only in case the sole earner or you can say the insured person expires during the term of the policy. It offers financial compensation in case of death . In some cases, insured person gets the financial compensation after retirement or a certain period of time. 

Factors for Life Insurance

  • Age
  • Health (past and current)
  • Your occupation
  • The type of coverage/plan
  • Your smoking and drinking habits
  • The sum assured

Life insurance can be classified into various types:

  • Term Insurance - Most basic type of insurance which covers you for a specific period and the family gets a lump-sum amount in the case of your death. In case of your survival till the term of maturity, your family will get no money.
  • Whole Life Insurance - Life cover provided for lifetime and your family receives a certain sum of money after your death. 
  • Endowment Policy -  It's like a term policy and valid for a certain period. A lump-sum amount will be paid to your family in the event of your death. In case of your survival and end of term period, you will get the maturity proceeds.
  • Money-back Policy -  This is beneficial during your survival period and even after your death. A certain percentage of the sum assured will be paid to you periodically till your survival or the term  period whichever is earlier. If term period gets over, you will get the balance amount as maturity proceeds. In case of death during, your family will get the insured amount regardless of the survival benefit payments made.
  • Unit-linked Insurance Plans (ULIPs) -  Double benefit schemes like one part is paid as premium for your insurance cover and some part is invested in Debt and Equity.  A lump-sum amount will be paid to your family in the event of your death.
  • Child Plan - Premium is paid to secure your child’s future. In the event of your death, your child gets a lump-sum amount and the  child will continue to get a certain sum of money at specific intervals.
  • Pension Plans - After retirement scheme in which you get regular pension amount after retirement.  In the case of your death, your family can claim the sum assured.

Tax Benefits - Life insurance brings tax benefits. The amount you pay as premium can be deducted from your total taxable income. The deduction is subject to a maximum of Rs 1.5 lakh, under Section 80C of the Income Tax Act. The premium amount used for tax deduction should not exceed 10% of the sum assured.

  • Health insurance

Health insurance is a type of insurance which provides medical cost of your treatments. Health insurance policies cover an array of diseases and ailments from generic to specific diseases. It usually covers treatment, hospitalization and medication costs and  the cost of medical care. It also reimburses the amount paid for the treatment of any injury or illness. Factors affecting this insurance are your family health history, the sum assured, the type of coverage/plan, your age and gender and your health history

It usually covers:

  • Hospitalisation
  • The treatment of critical illnesses
  • Medical bills prior to or post hospitalisation
  • Day care procedures like Cataract operations

Add-on benefits are - 

  • Maternity cover: It covers the costs related to childbirth including pre-delivery check-ups, hospitalization during delivery, and post-natal care.
  • Pre-existing diseases cover: Your health insurance takes care of the treatment of diseases you may have before buying the health insurance policy.
  • Accident cover: It covers the medical treatment of injuries caused due to accidents and mishaps. 

Tax benefit - Your health insurance can also help you save tax. Your premium payment can reduce your taxable income.

  • General insurance.

Other than our life and health, third category is of General insurance which covers valuables against damage, loss, fire and theft. The premium and cover vary and depends upon the type and extent of insurance. It offers financial compensation against financial loss due to liabilities related to your house, car, bike, health, travel, etc. 

Types of General Insurance available are - 

  1. Motor Insurance
  2. Travel Insurance
  3. Home Insurance
  4. Fire Insurance
  5. Education insurance

Other types of general insurance:

  1. Marine insurance
  2. Commercial insurance
  3. Rural insurance
  4. Crop insurance

Types of General Insurance in India

  • Motor insurance -  Motor Insurance is done for two-wheeler, three-wheeler or four-wheeler. The damage can be caused natural or man-made which will depend upon different circumstances. In India, under the Motors Vehicle Act, motor insurance is mandatory. After the amendment in Motor Vehicles act, third-party insurance is compulsory before the purchase of a new vehicle. It covers against any incident like accidents, damages to your vehicle, natural calamities damage to vehicle like floods or earthquakes and the third-party liability when you have to pay damages to other vehicle owners. Types of Motor Insurance are Third Party Insurance and Comprehensive Car Insurance. Factors covered under Motor insurance are make-model of the vehicle, the type of coverage/plan, the value, age of your vehicle and the your claim history.

  • Travel insurance - Another popular type of general insurance is travel insurance, which covers your trips abroad to cover loss or theft of your valuables as well as documents which could be personal as well as business. It provides security or financial liabilities for medical and non-medical emergencies during your travel. There are two types of Travel Insurance - Single Trip Policy which covers you during a trip that lasts under 180 days and Annual Multi Trip which covers you for several trips you take within a year. Factors covered under this are the sum assured The type of coverage/plan, Age, health and the location of travel. Things covered in travel insurance are

  1. Loss of baggage
  2. Emergency medical expenses
  3. Loss of passport
  4. Hijacking
  5. Delayed flights
  6. Accidental death

  • Home insurance - This kind of  insurance protects home and the items inside it against the loss due to  natural and man-made circumstance or accidents like fire and other natural calamities or perils. Some of the common types of home insurance are 
  1. Standard fire and special perils policy -This covers your home against fire outbreaks and special perils. The dangers covered are natural calamities like lightening, flood, storm, earthquake, etc., damage caused due to overflowing or bursting of water tanks, pipes, etc. and finally damage caused due to man-made activities such as riots, strikes, etc.
  2. Home structure insurance - This protects the structure of your home from any kinds of risks and damages. The cover is also extended to the permanent fixtures within the house such as kitchen and bathroom fittings.
  3. Public liability coverage - The damage caused to another person or their property inside the insured home can also be compensated.
  4. Content Insurance - This covers the content inside the insured home. What’s commonly covered: Television, refrigerator, portable equipment, etc.

  • Fire Insurance - Fire insurance is insurance aginast loss to property or goods due to firecovering replacement, reconstruction or repair expenses. It also covers the damages caused to a third-party property due to fire. 

Some of the common types are:

  1. Valued policy - The insurer firsts value the property and then undertakes to pay compensation up to that value in the case of loss or damage.
  2. Floating policy - It covers the damages to properties lying at different places.
  3. Comprehensive policy - This is known as an all-in-one policy.
  4. It has a wide coverage and includes damages due to fire, theft, burglary, etc.
  5. Specific policy - This covers you for a specific amount which is less than the real value of the property.

  • Education Insurance - To make your child able to get the type of education you want for child. This type of insurance provides a lump sum amount of money when your child reaches the age for higher education and reached age of 18 years and above. This can be used to pay off child’s higher education expenses.

Top tax saving Investment - 

Tax saving investment plans help us in controlling our financials better. They are instrumental in effectively achieving our financial goals. Investment schemes available in the market provide tax exemptions and tax deductions. There are various schemes through which we can reduce our tax burden by investing in the tax saving schemes at the right time. We can choose from various tax saving mutual Although some schemes are associated with  low returns but high risks, still they save us from burden of tax.

The tax-saving season starts from 1 st April for both salaried and non salaried taxpayers. We should look for tax saving investment schemes right from the beginning of financial year.  Tax saving investments schemes not only provides the benefit of tax exemption but also helps to earn tax-free income. There are many smart ways to save taxes and enjoy the maximum savings possible. by smartly planning our financials and by investing in these schemes, we can avail the maximum returns on investment from different tax-saving investments. These are a number of factors which affect our choice from available options. These factors are like safety, returns and liquidity, how the returns will be taxed. If the returns on investment are taxable, then the scope to create wealth over a long-term gets constrained. 

here we present some of the best tax-saving investments u/s 80C of the Income Tax Act, 1961.

Investment Returns Lock-in Period 

  • ELSS Fund 15%-18% 3 years
  • National Pension Scheme (NPS) 12%-14% 
  • Till Retirement Unit Linked Insurance Plan (ULIP) Returns vary from plan to plan 5 years 
  • Public Provident Fund (PPF) 7%-8% 15 years 
  • Sukanya Samriddhi Yojana 8.5% N/A 
  • National Savings Certificate 7%-8% 5 years 
  • Senior Citizen Saving Scheme 8.7% 5 years 
  • Bank FDs 6%-7% 5 years 
  • Insurance Returns vary from plan to plan 3 years

Additional Tax-saving Investments Beyond Section 80C 

  • Apart from tax deduction under section 80C, there is various tax-saving investments, which helps to save on taxes
  • One can gain tax benefit on the premium paid towards health insurance and home loan interest. 
  • A person can claim deduction up to Rs.25,000 on the premium paid towards health insurance under section 80D of Income Tax Act.
  • Under Section 80EE of Income Tax Act, one can claim deduction up to Rs.50,000 on home loan interest. 
  • The home loan also helps in reducing the taxable income as the principal amount of the home loan can be claimed U/S 80C up to Rs.1.5 lakh and the interest amount can be claimed as deduction from income from house property.

Top tax saving investment instruments which are tax-free -

  • Sukanya Samriddhi Account 
  • Public Provident Fund (PPF) 
  • Senior Citizens Saving Scheme 
  • National Pension Scheme (NPS) 
  • Employee’s Provident Fund (EPF) 

In order to save tax you should invest in these schemes

  • 5 years Bank Fixed Deposit 
  • Public Provident Fund (PPF) 
  • National Savings Certificate (NSC) 
  • Equity Linked Saving Schemes (ELSS) 
  • Unit Linked Investment Plan (ULIP) 
  • National Pension Scheme 
  • Life Insurance Senior Citizen Savings Scheme (SCSS)