Insurance plans help in managing the different types of risks that individuals face. These plans provide financial security.
There are different types of insurance products depending on the risks covered — life insurance, health insurance, motor insurance, travel insurance, fire insurance, etc. Similarly, when it comes to the payment of claims, insurance plans can be benefit based or indemnity based.
Do you know what these plans mean or how they are different from one another?
If you don’t, here’s a complete analysis of benefit based and indemnity based insurance plans to enhance your knowledge of your insurance distribution journey.
What are Benefit Based Insurance Plans?
Benefit based insurance plans are those plans that pay a fixed benefit at the time of claim, usually in a lump sum. This lump sum benefit does not depend on the actual loss suffered. It is a pre-defined benefit that you get when you make a claim.
The most common example of a benefit based insurance plan is a life insurance plan. Under life insurance plans, in the case of the death of the insured, a lump-sum death benefit is paid. This benefit does not depend on the actual financial loss that the family suffers. On the contrary, it is pre-defined at the time of buying the policy.
So, for instance, you buy a term life insurance policy of Rs. 25 lakhs. In the case of death, the death benefit would be Rs. 25 lakhs.
Types of Benefit Based Insurance Plans
Besides life insurance plans, here are other types of benefit based products that are available in the market:
|Points of difference||Benefit based plans||Indemnity based plans|
|Claim payout||A fixed amount of the claim is paid irrespective of the loss suffered.||The actual amount of loss suffered is compensated by the plan.|
|Payout determination||The claim amount is pre-defined. You know the amount of the claim that you would get beforehand.||The claim amount is not pre-defined. It depends on the loss that you suffer|
|Types of plans||Life insurance, critical illness plans, personal accident insurance, etc.||Most health insurance plans, motor insurance plans, travel insurance, etc.|
|Payout usage||The claim paid can be used to meet any type of financial obligation that you have.||The claim paid is, usually, used to pay for the losses that you have suffered.|
This article outlines the key differences between benefit based and indemnity based insurance products. As a distributor, you must understand the difference between these insurance plans. Only then you can pitch the right solutions when selling insurance plans.