6.2 Insurance Products

Life Insurance — Four Core Forms

Quick Answer: Life insurance in India comes in four main structures — term (pure protection, lowest premium, no maturity benefit), endowment (protection + a guaranteed savings payout at maturity), whole-life (cover till 99 or 100, with a savings component), and ULIP (unit-linked, market-linked, with a 5-year lock-in). All life insurers are regulated by IRDAI.

Term insurance

Term insurance is the purest form: it pays the sum assured to the nominee only if the policyholder dies during the term. There is no maturity or survival benefit. Because there is no savings element, the premium per ₹1 lakh of cover is the lowest of all life products — a 30-year-old non-smoker can typically buy a ₹1 crore term cover for ₹10,000-₹15,000 per year. Variants include increasing term, decreasing term (often paired with a home loan) and return-of-premium term (which returns premiums at maturity but charges more for the privilege).

Endowment and whole-life

An endowment policy bundles a death benefit with a savings component: if the policyholder survives the term, the sum assured plus bonuses are paid back. Premiums are much higher than term for the same sum assured, because part of each premium is being saved. A money-back policy is a variant that pays parts of the sum assured at intervals during the term.

A whole-life policy extends cover to age 99 or 100 and is used for legacy / estate-planning needs rather than income replacement.

ULIPs

A Unit-Linked Insurance Plan (ULIP) allocates part of the premium to life cover and the rest to market-linked units (equity, debt or a mix). Key features:

• Lock-in: 5 years from inception.
• Charges: premium allocation, fund management, policy administration, mortality, surrender charges (capped by IRDAI).
• Switching: the policyholder can switch between funds; IRDAI permits a set number of free switches per year.
• Tax: premium deductible under Section 80C (up to 10% of sum assured for policies issued after 1 April 2012); maturity proceeds exempt under Section 10(10D) only if the sum assured is at least 10 times the annual premium for policies issued after 1 April 2012.

Insurance-product comparison table

Health Insurance

Health insurance in India is sold as mediclaim (hospitalisation cover), critical illness (lump sum on diagnosis of listed diseases such as cancer, stroke, kidney failure) and top-up / super top-up plans (cover above a deductible). Two structures dominate:

• Individual policy — each family member has a separate sum insured.
• Family floater — one sum insured shared across all named family members; economical, but the cover is exhausted if one member makes a large claim.

Premium is deductible under Section 80D — up to ₹25,000 for self, spouse and dependent children (₹50,000 if any is a senior citizen), plus another ₹25,000 / ₹50,000 for parents. Preventive health-check expenses up to ₹5,000 are counted inside the 80D limit.

General Insurance

General insurance covers everything that is not life — motor (third-party is mandatory under the Motor Vehicles Act), home, fire, marine, travel, crop and engineering. Motor insurance distinguishes third-party (compulsory under the Motor Vehicles Act; the premium is notified by the Government — the Ministry of Road Transport and Highways, in consultation with IRDAI — not priced by the insurer) from own-damage (market-priced by the insurer). General insurers are regulated by IRDAI under the Insurance Act 1938 and the General Insurance Business (Nationalisation) Act 1972 (the latter covers the four public-sector general insurers).

Claim Process and IRDAI Protection

The standard claim process has four steps:

1. Intimation — the policyholder or nominee notifies the insurer in writing (or online) within the time limit (typically 7 days for early claims, 30 days for others; death claims need intimation as soon as possible).
2. Documentation — claim form, original policy, death certificate / hospital bills / discharge summary, KYC, and for general insurance a FIR / repair estimate as applicable.
3. Survey / assessment — for general insurance (motor, fire, marine), an IRDAI-licensed surveyor inspects the loss and files a report. Life and cashless health claims skip this step.
4. Settlement — Under the IRDAI Master Circular on Health Insurance Business (May 29, 2024), an insurer must decide a cashless pre-authorisation request within 1 hour and issue final discharge authorisation within 3 hours; cost of any delay beyond 3 hours is borne by the insurer. Under the IRDAI (Protection of Policyholders' Interests) Regulations, 2024, a death claim needing no investigation is settled within 15 days, and one requiring investigation within 45 days; surrender and partial-withdrawal claims are processed within 7 days. Delay attracts interest at the bank rate plus 2%.

Free-look period

Under the IRDAI (Protection of Policyholders' Interests) Regulations, 2024, every policyholder gets a 30-day free-look period from receipt of the policy document — for all policies of one year or longer, regardless of how they were bought (the earlier 15-day/30-day split by sales channel has been removed) — within which the policy can be returned if the terms are not acceptable. The insurer refunds the premium after deducting a proportionate risk premium and stamp-duty charges. This is the policyholder's strongest consumer protection against mis-selling.

IRDAI's role

IRDAI (Insurance Regulatory and Development Authority of India) licences insurers, brokers and agents; prescribes solvency margin requirements (150% for life and general, the same floor applies to health), approves product files, runs the integrated grievance management system (IGMS), and publishes the claim-rejection ratios of every insurer annually. IRDAI does not set premium rates for all products — only third-party motor and some health covers are tariff-rated.