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Insurance products and indemnity

Life is full of risks and unpredictable events and it is important to duly safeguard yourself from these happenings which could cost you heavily both financially and mentally. Thus, insurance plays a vital role. Insurance is a form of contract which works on the principle of indemnity where one party seeks financial protection or reimbursement from another party known as an insurer on the happening of certain events which leads to loss of life or damage to a certain commodity on which the insurance has been provided.

In other words, insurance is nothing but an assurance that the insurer provides to the policyholder that when a certain loss or damage would occur to a policyholder or an object then the insurer would provide a certain amount to the policyholder or a nominee in case of life insurance, in return for an annual premium provided by the insured policyholder to the insurer.

The insurer provides economic support when the insured deals with the damage or a loss. For this purpose, a value is assigned to a property so that when the property deals the damage the insurer could provide reimbursement to it based on its value which in case of no insurance could be irreparable to the owner of that property.

Insurance companies are generally the insurer here. These companies provide insurance on different tangible and intangible products known as insurance products. Insurance products in other words are nothing but insurance policies provided by an insurance company on different types of insurance such as life insurance, fire insurance, motor insurance, aviation insurance, health insurance, etc.

Types Of Insurance Products?

As discussed in the previous section insurance products are the policies provided by the insurer to the insured policyholder on different types of insurances. Before understanding what all insurance products are generally provided by the insurer to the insured, it is important to know about insurance types.

Some of them are discussed below:
  1. Life Insurance:

    Under life insurance, the life of the policyholder or the life of some other person is insured by the insurance company, in other words when the policyholder or the person for whom the insurance has been taken dies then the company pays a certain amount to the nominee which is generally a family member of the policyholder. In some cases, the policyholder and the person whose life is insured could be the same as in those cases policyholder's life would be insured whereas in other cases the policyholder and the person whose life is insured could be different, here the nominee would be the policyholder himself and the amount payable on the death of the person whose life is insured goes to the policyholder. Whereas in other cases where the policyholder is the one whose life has been insured then the company pays the amount to the nominee which generally is a family member as discussed above.
  2. Health Insurance:

    As the name suggests, health insurance is an insurance that covers the reimbursement of the medical expenses incurred by the insured after a certain medical condition which includes different medical expenses such as hospitalization, surgery, healthcare, and recently the areas as to what this insurance constitutes has been widening and has also started including dental care, mental illness, and so on.

    Generally, the insurer estimates the premium and payroll tax through an analysis of the health condition, the system, various expenses over the risk pool, and then the agreement is formed with certain benefits provided to the insured.
  3. General Insurance:

    As mentioned previously in this article there are different types of insurance such as life, health, fire, motor, aviation, etc. General insurances in India include a vast list of insurances varying from marine to miscellaneous insurances. Some of the important insurances that come under the ambit of general insurance are listed below:
    • Travel insurance
    • Motor insurance
    • Marine insurance
    • Engineering insurance
    • Commercial insurance
    • Miscellaneous insurance
This will be discussed in the further section of this article in detail.

What Are Insurance Products?

Insurance products mean any product provided by an insurer in its insurance whereby such insurer or undertakes to indemnify the insured person as to loss from certain perils called risks which are mentioned in the insurance contract or to pay a specified amount with or without a benefit (depending whether it is participating or non-participating product) in connection with the mentioned risk contingencies or to act as a guarantee, including reinsurance agreements, reinsurance treaties, reinsurance pools, property and casualty insurance products, accident, and health insurance products, life insurance products, surety bonds, specialty risk insurance programs, warranty programs, insurance loss portfolio transfers and any other insurance or reinsurance product related to the risk undertaken or commitment to pay the insured for specific types of losses[1].

In other words, insurance products are those policies that form the basis of the contract. Products are of several types but majorly we can distinguish insurance products into 2 main categories: Life insurance products and general insurance products.
  1. Insurance Products:

    The life insurance products include different life insurance policies that can be differentiated based on the lump sum, payable premium, benefits after exceeding the maturity period, etc. Different policies include different payable premiums and benefits. Let's discuss these life insurance products in detail:
    1. Term Insurance Products:
      These are those insurance products that have a fixed term after which even if the event happens nothing is payable to the insured. Since these are life insurance products, the event here is the death of the policyholder, if the one insured by the insurer is the policyholder himself whereas in other cases, the event is considered as the death of the insured within a specific period.

      For example, A person has opted for a term insurance policy at the age of 30 years and the term insurance contract specifies that the term for the insurance is 10 years then unless that person dies before age of 40, no amount would be payable to the nominee, whereas if the person suffers a heart attack at the age of 35 and dies then the insurer would have to pay the lump sum to the nominee who is generally a family member of the insured.

      Term insurance policies are not very popular in India and fewer people opt for it as it is valid for a specific period only. Compared to other products term insurance is the cheapest as the only premium payable to the insurer does not include saving or investment in it, however, there are options where if the insured person survives can ask for a return of the premiums paid during the term of the insurance.

      In simple words, Term insurance products are valid for a fixed term and therefore the risk included is generally lesser as compared to whole life insurance products which makes it the cheapest of all.
       
    2. Whole life insurance products:
      These are those similar insurance products to term insurance products the only difference is that here the term period is absent. As the name suggests that these are products which carry till the person is alive. Generally, the age for the payable amount to be paid by the insurer is 85 years, if a person crosses the age of 85 years then the insurance companies pay the insured person the amount that the insurer is bound to pay generally on the death of the person insured.

      Like term insurance products, whole life insurance products are also simple and don't include any saving so the premium that is paid by the policyholder is also lesser but not lesser than term insurance product as lesser risk means lesser premium.
       
    3. Endowment products:
      Endowment products are those products in which the lump sum is payable with the benefits in terms of participating products where a certain amount of money is invested by the policyholder into shares increasing the risks and benefits would also include bonuses with the lump sum payable, here even if the person survives the term until the maturity of the policy or either the person dies before the maturity of the policy, whichever occur first.

      In other words, the condition for the insurer to pay lump sump along with benefits (in case of participating products) to the nominee (can be policyholder) is either the maturity of the policy or the death of the insured person or if the insured person crosses the maturity period of the policy.
       
    4. Money-back products:
      These are similar to the endowment products, here the only difference is that the sum assured to the insured person is paid in installments after completion of the specified period. For example, a person who is 30 years old buys money back life insurance policy after the completion of a term say 10 years would be paid some part of the lump sum say 20% and similarly, after 20 years from the date of taking policy would be given 50% of the lump sum and rest after the completion of the maturity period of the policy. However, if the insured person dies at any time of the period before maturity then the nominee would be paid the full lump sum assured according to the contract.
       
    5. Linked life insurance products:
      These are those products that are a combination of insurance and investments, the premium that is paid by the policyholder is used partly into mortality insurance cover and a part of it is invested into the funds. These are different types of funds provided by the insurer to the insured person to invest in them partly. These funds could be equities, bonds, debts, market funds, etc.

      There is the flexibility provided to the insured cum investor to choose where to invest his/her money according to his risk profile and financial commitments. A policyholder who becomes an investor can switch his funds accordingly however only a few free switches are allowed. This gives linked life insurance products an upper hand as compared to other products as insurance and investments go hand in hand.
       
    6. Variable life insurance products:
      Variable insurance may be a permanent insurance product with separate accounts comprised of assorted instruments and investments like stocks, bonds, equity, security funds[2].In simple terms, it can be described as a product that guarantees interest credits along with the vanilla insurance policy that is provided by an insurer though it is not very popular in India./
       
  2. Health Insurance Products:

    We have already discussed what is health insurance? In this section, we will discuss health insurance products.

    There are generally 2 types of health insurance products:
    1. Indemnity based health insurance products and
    2. Fixed benefit-based health insurance products.
     
    1. Indemnity based health insurance:
      Indemnity health insurance product is the vanilla policy for certain health conditions. Here a pre-decided sum is assured by the insurer to the insured person who would be paid that amount in case the insured person suffers a health condition. In this case, that sum would be deducted from the hospitalization charges of the insured person. In short, this is the basic health insurance policy that includes certain charges to be reimbursed to the insured person in form of an assured sum.

      The charges include Doctor's fee, medical equipment, Surgical fees, operation theatre charges, medicines and consumables, hospital ward charges. In many policies, pre and post-hospitalization are included too. Pre-hospitalization charges include diagnosis, doctor's consultation charges, medical tests. Post-hospitalization charges include further medication charges and consultation fees.
       
    2. Fixed benefit based health insurance:
      In this type of health insurance product, the amount payable to the insured is fixed if the insured person has proof of hospitalization and proof that he/she has spent money on medical conditions including hospitalization charges, medication charges, and other charges such as room rent, etc.

      This type of insurance as the name suggests is provided on the happening of a certain pre-defined event that is insured. Here it is important to note that the amount paid in form of a premium to the insurer has no relation to the expenses incurred by the insured person after a critical illness listed in the contract occurs.

      To safeguard yourself it is recommended to choose a plan which lists at least certain important critical illnesses that are common or can likely happen to the insured in the future also it is important to note that once the critical illness listed occurs, the policy automatically termites after the insurer bear the cost of the expenses that were incurred by the insured.
       
  3. General Insurance Products:

    General insurance products include generally those insurance products that are non-life insurance or those products that do not insure life but other things such as health, vehicles, marine, fire, etc. General insurance is generally a contract that is done on yearly basis, also many variables are taken into consideration as compared to life insurance to define the premium ratings.

    Generally, products are categorized into two main types:
    Commercial products that are provided to a company or an organization and personal products that are provided to individuals by the insurer.
The reason that general insurance products are annual is that they are subject to change and may depreciate by losing their actual value may also become out of fashion or the companies might face difficulty in providing service for that products so companies prefer to take premium annually.

Which Insurance Products Should You Buy?

Till now we have discussed what all insurance products are there under different types of insurance such as life insurance, health insurance, general insurance. Health insurance also includes travel insurance which is again a non-life insurance product. Whereas some insurers count health insurance as a part of general insurance as it is a non-life insurance product. So here a question arises that which insurance product is best. Well for that it is important to understand the need for insurance.

For a person who just wants to be insured for a specific term without spending money on premiums, term insurance would be ideal whereas for someone else the need to ensure his/her life could be the time till he/she would survive so here the whole life insurance product would be ideal. If a parent wants to ensure his/her son/daughter's life then a child plan would be better. So by comparing the needs of the insured these insurance products should be brought.

Conclusion:
So far it is discussed in the article that what is insurance and what all insurance products are provided by the insurer to fit your needs, though it is important to understand that every product has its pros and cons which should be taken into consideration before buying an insurance product. However nowadays participating products are more popular than non-participating products as participating products gives an option to an insured person to invest in different funds, though the risk is higher in these products, the benefit that is provided after the maturity period of the policy comes to an end are greater and profitable.

End-Notes:
  1. Definition of insurance products, Law insider (Jan. 3, 2021, 8:27 pm), https://www.lawinsider.com/dictionary/insurance-products
  2. Julia kagan, variable life insurance, Investopedia (Jan. 3, 2020, 10:53 pm) https://www.investopedia.com/terms/v/variablelifeinsurancepolicy.asp.

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