In India, the insurance market is ruled by both public and private sector companies. The insurance sector is divided into two broad categories – Life Insurance and General Insurance.
Life Insurance
By definition, Life Insurance is a contract with the insurance company to provide a lump sum payment to the nominees/beneficiaries in the event of the death of the insured person, in exchange for regular payments to the insurer, which is known as premium. Life insurance is a key element in the financial planning process for NRIs – especially if they intend to return to India. However, in India, Life insurers offer insurance products which provide benefits beyond the death benefits such as maturity benefit, survival benefit etc.
The government-owned Life Insurance Corporation of India (LIC) has the largest share in the life insurance market and all its insurance policies come with a sovereign guarantee. The prominent private life insurance players are SBI Life Insurance, ICICI Prudential Insurance, HDFC Standard Life Insurance and Birla Sun Life Insurance.
The insurance document issued is also known as Insurance Policy, Insurance Plan or Insurance Bond. Let us understand the various types of products issued by Life Insurers in India:
- Term Insurance – This is a pure risk cover which provides a lump-sum to the beneficiaries, on the death of the insured. Typically, the tenure of the life cover, also known as the policy period, will be 10-30 years. This is the cheapest form of life insurance, with the premiums being the lowest. If the insured survives the policy period, the policy lapses with no benefit payable.
- Endowment Policy – These policies have two components – the death benefit and the maturity benefit. The premiums collected are used to provide a life cover, which is given in the event of the death of the insured and to provide a maturity/assured benefit, in case the insured survives the policy period.
This is a very popular, low-risk insurance policy, relied on by many Indians as an investment vehicle. These policies also issue a bonus to each policy, depending on the policy terms, which adds to the maturity benefit of the policy. The premiums are higher than term insurance, as these carry multiple benefits.
- Unit-linked Insurance Policy (ULIP) – ULIPs are market-linked plans in which part of the premiums are invested in the stock market and part of it is used to provide a life cover to the policyholder. These plans carry high risk, as the returns depend on the stock market performance and also, the policy charges are very high.
- Pension Plans – These plans are basically retirement plans for both NRIs and Indian residents, which have an accumulation phase and a distribution phase. In accumulation phase, the insured has to pay regular premiums, which will be invested in a pension policy similar to low-risk endowment policy or a market-linked policy. The entire corpus at the end of the accumulation period is then used to buy an annuity, through which distribution phase starts.
Before you purchase any insurance policy in India, as an NRI, it is important for you to know the category of the policy, the assured benefits, the life cover, the risks involved and the premium cost before purchase.
General Insurance
General Insurance is a non-life insurance, which provides payments or compensates the loss from a particular event. In India, general insurance policies include health insurance, automobile/motor insurance, home insurance, accident insurance etc.
The sector is ruled by both private and public sector companies. The major players are the government-backed National Insurance, New India Assurance, Oriental Insurance and United India Assurance. The private players include ICICI Lombard, Bajaj Alliance, HDFC Ergo etc.
Unlike life insurance, the general insurers are not permitted to issue any policy with assured benefits and are bound to cover only the financial risk arising, on the occurrence of a particular event.
Let us understand the different types of general insurance policies:
- Health Insurance – This is also known as medical insurance or mediclaim. This policy pays the hospitalization expenses of the insured and/or his family members. These policies can be taken for an individual or for a family. The premiums for the health insurance vary depending on the age of the insured.
- Automobile/Motor Insurance – This policy applies to all motor vehicles and compensates you to the extent of the value of the vehicle, in the case of theft or the cost of repair, in the case of damage due to accident or riots or any calamity.
- Home Insurance – This policy provides compensation to you in the case of damage to your property due to burglary, natural calamities like floods, earthquakes and any external forces. This policy also provides additional coverage, if needed, to household contents like electronic goods, jewelry, furniture etc.
- Accident Insurance – This policy hands over a lump sum to the insured in case he meets with an accident. The amount disbursed depends on the extent of the injury, the insured sustains in the accident.
The most common types of insurance policies sold in India have been explained above. Unfortunately, insurance policies are the most commonly mis-sold financial products by insurance agents/distributors. As an NRI, you may be approached by many insurance distributors to sell both life insurance and general insurance policies. Before you purchase any of them, here are some pointers to consider:
- You have to first check if NRIs are eligible to purchase the policy.
- You have to check with the distributor about the maturity/assured benefit of the life insurance policy and the IRR (Internal Rate of Return) of it.
- If it is a market-linked plan, the agent has to share the details of the fund in which the premium is going to be invested.
- You have to check if the maturity benefits are repatriable.
- For health insurance, you have to check if the insurance would be valid outside India.
- For other general insurance products, you have to check if the compensation paid in accident insurance or home insurance, is repatriable.
