Insurance is a mechanism through which the persons exposed/vulnerable to the potential risk, arising out of events that are not in control of that particular person. In such a situation according to the concept of insurance, the financial loss of that person is partly or fully transferred to the insurance company.

The party transferring the potential loss is termed the insured, and the party which indemnifies or undertakes to indemnify/compensate the other party of such potential loss is termed the insurer. The insurer provides coverage for the potential financial loss for which the insured pays a certain fee which is called a premium. The insurance is a contract, and both parties must comply with the terms and conditions. Various types of insurance are dealt with below.

Types of Insurance:

The insurance is mainly classified as:

• Life insurance (assurance).
• General insurance (Non-Life insurance).

For the purpose of study, the general insurance can be further classified as:

• Commercial insurance.

What is Life Insurance?

Life insurance is a contract under which the insurer pledges payment of an amount to the person assured/insured (or his nominee) on the happening of the certain event against which a person is insured.

Types of Life Insurance:

• Term Insurance:
  In this type of insurance, the insurer pays to the insured only if death occurs during the term of the policy. A term insurance is an insurance product under which the person insured receives the benefit only if the insured dies during the time for which the insurance policy is brought by the insured. If the insured dies after the completion of the term then, nothing will be paid by the insurer to the person insured/nominee. The premium of term insurance is less and the policy or settlement amount is very high i.e. like 1.2 crore or 5 crores.
  
  Ex:
  'A' buys term insurance on the terms and conditions that till the insured attains the age of 80 years the policy will be valid. If 'A' dies at the age of 81 years, then the insurance company will not give any claim/amount, thus this type of insurance is known as term insurance.
   
• Whole Life Policy:
  In a whole-life policy, the person buying the policy is insured from the date on which he buys the policy. The premium has to be paid until the insured person is alive. If the insured person dies, then the insurer will pay the assured amount to the family(nominee). After the death of an insured person, the accumulated amount and benefits (total corpus) are paid to the family (nominee). In this type of insurance, the family will get the benefit of the insurance plan.
   
• Endowment Plans:
  The endowment plan pays out the sum assured/insured under both circumstances i.e. death during the term of the policy and survival of the insured after the term of the policy. Under the endowment plan if a person dies during the term of the policy, then the family/nominee shall get the sum insured. If a person survives the term of the policy, then the insured shall get the assured sum. But in this type of insurance contract, the premium paid by the insured is very high.
   
• ULIP (Unit Linked Insurance Plan):
  In this type of insurance both the purpose of the insured is fulfilled i.e. if he/she wants to do insurance as well as an investment for his/her future savings. It is a combination of insurance and investment for any insurance product, the policyholder pays a certain premium to the insurance company. Under the ULIP plan, a portion of this premium is utilized to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments (similar to mutual funds). ULIP is eligible for tax benefits up to a minimum of Rs. 1.5 lakh. Once the policy term ends the insured will receive a lump sum called the maturity benefit. In case of death during the term of the policy, the family receives an amount called sum assured.
  
  Ex:
  After the end of the term, the maturity benefit is 1 crore in case the insured dies during the term then the family shall receive the sum assured ex:10 lakhs. The lock-up period of the ULIP plan is -5 years, which means the insured can't break the policy before the completion of 5 years. The first ULIP was launched by the Unit Trust of India in 1971.
   
• Money Back Policy:
  In this type of insurance, the insured pays periodic payments over the policy term. There are two cases:
  Case 1: if he/she survives the policy period then he/she will receive the remaining balance i.e. sum assured.
  Case 2: if he/she does not survive the policy period- then the nominee shall get the full sum assured. This insurance policy can be understood through the following example: case 1: in a 15-year policy, till 10 years the insured pays a premium then after that insured receives payments for a certain year as per the condition of the policy. After the completion of the policy period i.e. 15 years, the insured shall receive the remaining assured sum. Case 2: if an insured person dies during the period of insurance, then the nominee will get a full assured sum.
   

What Is General Insurance:

General insurance (also known as non-life insurance) this type of insurance provides insurance for valuables and products other than our life. It protects against damages, loss, and theft of valuables that are insured. Examples of this type of insurance are Motor insurance, Health insurance, crop insurance, etc.

Types of General Insurance:

• Motor Insurance:

  The Motor Vehicle Act of 1988 mandates that all vehicles running on Indian roads should be insured. Motor insurance can be for cars, two-wheelers, or commercial vehicles. There are two types of motor insurance:
  1. Third-party liability cover.
  2. Comprehensive motor insurance policy.
      

• Third-party Liability Cover:

  It provides insurance for damage done to another's vehicle/person by the insured vehicle. It does not provide insurance to the vehicle for which the person got third-party insurance. In this type of insurance, the insured can't claim damages for his/her vehicle. This insurance gives compensation/damages to the third party who has been affected by a person's vehicle, i.e., who has third-party insurance. It covers liability against third parties only.
   

• Comprehensive Motor Insurance Policy:

  As the name suggests, a comprehensive insurance policy offers complete protection to both parties involved in an accident. So, the damages to one's self-car, as well as the third party involved in the accident, are covered by the comprehensive policy, up to the maximum coverage amount.
   

• Health Insurance:

  It is a type of insurance in which the policyholder is covered for medical and surgical expenses. Health insurance can be classified into four types:
  1. Individual cover: Such products provide insurance coverage to individual members.
  2. Comprehensive health insurance cover: It is a complete package that includes almost all the healthcare facility and healthcare needs, ensuring complete peace of mind regardless of the situation of life he/she is in.
  3. Family floater cover: Covers family members under a single plan. Every member of the family needs not to buy a plan individually.
  4. Surgery cover (tertiary care cover): It provides a fixed amount for specified surgeries and helps the person take care of his medical and treatment expenses in the hospital.

• Travel Insurance:
  • First, we should understand why should we need travel insurance. If people are on a travel trip, something goes wrong such as loss of baggage, trip delay, and other incidental expenses. The travel insurance is to provide cover against such events.
  • Major protection in travel insurance is for flight delays, loss of baggage or passport, medical emergencies during travel, hospital cash allowance, hijack distress allowance, financial emergency assistance, etc.
  • Some types of travel insurance are international travel insurance, student travel insurance, group travel insurance, senior citizen travel insurance, domestic travel insurance, and corporate travel insurance, etc.

• Commercial Insurance:
  • These are insurance plans to cover the risk of business-related requirements. There are risk covers for all sectors of the industry ranging from automobile, aviation, construction, chemical, food & beverages, manufacturing, oil & gas, pharmaceutical, power, technology, telecom, textiles, transport and logistics, etc.

Types of Commercial Insurance:

• Marine Insurance:
  • Covers the ships and cargo inside it against damage or loss.
     
• Public Liability Insurance:
  • Public liability insurance is a type of commercial insurance that protects the insured company from claims made by members of the public who sustain injuries, fatalities, or property losses because of the insured company's business operation.
     
• Energy Insurance:
  • This is insurance for refineries, petrochemicals & and chemical plants, gas works, terminals & and tank farms, underground storage & and chemical fertilizers plants.
     
• Financial Lines Insurance:
  • Financial lines insurance is a range of policies that are designed to protect companies, management, employees, advisors, and funds against financial loss in the event of management and professional liabilities within a specified field. Examples: cyber protection insurance, director & and officer's liability insurance, employment practice liability insurance professional indemnity, etc.
     
• Engineering Insurance:
  • Insurance that provides an economic safeguard to the risks faced by the ongoing construction project, installation project, machine & equipment in project operation.
     
• Fire Insurance:
  • Fire insurance is a form of general insurance that covers and compensates for losses and damages to the property caused by fire. When a property is covered by fire insurance, the insurance company will pay out in the event of loss covered under the policy.
     
• Property Insurance:
  • This is one of the most popular types of commercial insurance. This type of insurance covers damages to the insured properties as per the terms of the policy. For example, damage caused by any uncertain event (flood/earthquake) to the workplace space that has been specified in the terms agreed upon by the parties to the insurance will be covered under this type of insurance to safeguard the interest envisaged in the property and to safeguard investments of the insured in the property.
     

• Agriculture Insurance:

  The agricultural sector has a higher risk involved concerning production/output from the cultivation (after the specified harvest period). In contrast to any other economic sector. The agricultural sector faces higher risks than ever before as a result of climate change which is making the weather unpredictable and unsuitable for cultivation by the reason of global warming and other environmental concerns. Under the contract of crop insurance, the insured farmer is insured with all eligible acreage of a crop planted.
  
  Crop insurance is a comprehensive harvest-based policy structured to compensate farmers' losses arising due to production problems. It covers pre-showing and post-harvest losses due to cyclonic rains and rainfall insufficiency. These losses lead to a reduction in the amount of crop production thus, affecting the revenue of farmers. In India, crop insurance is offered in the form of Pradhan Mantri fasal Bima Yojna.
  
  The crop insurance provides damages to the insured on account of damages caused to crops by local calamities, showing/planting/germination risk (because of deficit of rainfall or adverse seasonal conditions), standing crop damage due to non-preventable risks such as drought floods, hailstorms, cyclone, typhoons, etc.., and post-harvest losses (it covers losses for up to a maximum period of two weeks from harvesting). However, the claim by the insured must comply with all basic principles of insurance. But there are some situations where a claim can't be made like in case of war, nuclear risks, malicious damage or other preventable risks, burning of crops by the order of the public authority, damage caused by animals, contamination caused by nuclear waste, etc.

Conclusion
The insurance is an important aspect in the modern world. As a person who is exposed to potential risk ex: a driver) or an ordinary person who may be affected by uncertain events. In both cases, if they had insurance cover, they can be compensated for loss or damages they incur as per the terms and conditions of the policy or their family/nominee may be compensated in case of uncertain events.

So, the wide variety of policies helps the policy buyer to decide according to their needs. The basic nature of insurance is that it safeguards against uncertain events or specified terms, by providing compensation as per the condition specified in the policy. Thus, how the types of insurance play an important role in dealing with the different needs of the policy buyer.

Reference Book:

1. Elements Of Banking And Insurance By Jyotsna Sethi Nishwanbhatia.

References Links:

• https://www.linkedin.com/pulse/types-insurances-gopinath-d-1gpmc/
• https://www.forbes.com/advisor/insurance/types-of-insurance-policies/
• https://byjus.com/commerce/types-of-insurance/
• https://www.maxlifeinsurance.com/blog/life-insurance/types-of-insurance
• https://cbseacademic.nic.in/web_material/Curriculum20/publication/srsec/814%20Insurance%20XII.pdf
• https://beinsure.com/insurance/agriculture-insurance/