Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). The insurance company promises to make good the losses of the insured on happening of the insured contigency. The contigency is the event which causes a loss. It can be the death of policyholder or damage the property. It’s called a contigency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by insurer.
How does insurance work?
Any individual or company can seek insurance from an insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies refuse to provide insurance to high risk applicants.
What are the types of insurance available in India?
Insurance in India can be broadly divided into five categories:
- Life insurance:
Life insurance is insurance on your life. You buy life insurance to make sure your dependents are financially secured. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of policy.
2. Health insurance:
Health insurance is bought to cover medical costs for expensive treatments. The premium paid towards a health insurance policy usually covers treatment, hospitalization and medication costs.
3. Car Insurance:
Car insurance is an important policy for every car owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes.
4. Education Insurance:
An education insurance can be a great way to provide a lump sum amount of money when your child reaches the age for higher education and gains entry into college (18 years and above). This fund can be used to pay for your child’s higher education expenses.
5. Home insurance:
We all dreaming of owning our own homes. Home insurance can help with covering loss or damage caused to your home due to accidents like fire and other natural calamities. Home insurance covers other instances like lightning, earthquakes etc.
What are the tax benefits on insurance?
- Life insurance premium of up to Rs.1.5 lakh can be claimed as a tax-saving deduction under section 80C.
- Medical insurance premium of up to Rs.25,000 for yourself and your family and Rs.25,000 for your parents can be claimed as a tax-saving deduction under Section 80D.
These claims have to be made at the time of e-filing income tax returns.