What is deposit insurance?

Protection for your SAVINGS, in case your BANK goes Bust. Arrangements vary around the world, but in most countries deposit insurance is required by the GOVERNMENT and paid for by banks (and, ultimately, their customers), which contribute a small slice of their ASSETS to a central, usually government-run, insurance fund. If a bank defaults, this fund guarantees its customers’ deposits, at least up to a certain amount.
By reassuring banks’ customers that their cash is protected, deposit insurance aims to prevent them from panicking and causing a bank run, and thereby reduces SYSTEMIC RISK.

Deposit insurance is offered by DICGC( Deposit Insurance Credit Guarantee Corporation) which is under RBI. It’s basically offered to depositors if their deposited money is lost due to issues related to the bank. In such case you will get some amount of insurance and the maximum amount of insurance you will get was 1 lakh irrespective of your account balance but now after the union budget announcement, you will get 5 lakh per account if your deposited amount is higher.

But the catch here is you cannot have two accounts in a single bank and ask for insurance on both. So it’s wise to have accounts in different banks.