Why Insurance?
Insurance is a highly misunderstood product and it’s often bought and sold for the wrong reasons. At the same time it’s a very important part of your life and you must know certain ground rules for making the right decisions in the New Year. Many of us consider insurance just another investment for tax saving. Our day-to-day life is full of unpredictable risks for example loss of life, loss of income, critical illness, disability etc. Insurance planning means figuring out adequate cover against “insurable risks” and getting the maximum out of the premium you pay. Tax exemption is just another aspect of it. Having the right insurance cover gives you peace of mind as it provides financial support in case of contingencies.
Insurance is for the earning member of the family
Life insurance is a replacement for your income. When your income ceases or falls insufficient either due to death, illness, retirement or a major goal such as children’s education or marriage, insurance fills in the gap. On your death, the money received from term insurance policies will provide a corpus with which the family can pay off debts, convert dreams to reality and still lead a comfortable life. You must have seen cases of non-working mothers or non-earning family members getting insured. It goes against the fundamental principle of insurance. Therefore it’s important that the breadwinner covers the risks to his life and income, so that his family’s quality of life is not compromised after he is gone.
Your life insurance needs
Calculating life insurance needs is not a simple exercise but you must evaluate your current and required cover in 2010 and take corrective action. Remember that each of us has our own lifestyle, goals, aspirations and dependents which may be completely different from the life situation for your friend or colleague. So what works for someone else may not work for you. There are essentially three ways to calculate your insurance needs.
Types of insurance
- Life InsuranceInvest money for your future
- Health InsuranceAnalyse the market & type of saving
- Accident InsuranceInvest money for your future
- Motor InsuranceInvest money for your future
- Home InsuranceGet more Returns for your patience
A better solution for your Financial needs
If there are people who can’t afford to lose you, you should buy LIFE INSURANCE. Don’t put your people to risk for un-forseen. The benefits of insurance are not, of course, immediately obvious. Rather, insurance is purchased on the off-chance that something unfortunate will happen.
Insurance is one of the most important financial topics in today’s complex world. Failure to have sufficient insurance coverage is the quickest and easiest way to accrue mass debt. Nothing will make your business, car, house, family, or self more vulnerable or susceptible to financial strain than a lack of adequate insurance. However, paying too much for insurance can be a financial strain in itself. And paying for insurance that is not needed is just money down the drain.
The cheapest and the most basic, this is a no-frills life cover that should be one of your first financial instruments. Being a pure insurance cover, it does not return your money if you survive the policy term.
Most term plans provide cover till 60-65 years of age. Few even offer plans till age 75. As there is no surrender or maturity value in these, you should settle for the one with the lowest premium and the longest term.
Think of insurance as “hardship avoidance,” not “convenience” or “hitting the jackpot.” Contrary to some common perceptions, insurance is not a rip-off. For most people, it is a necessary and valuable financial service.
Important:
- Keep the highest possible term
- Keep the maturity age as long as possible
- Talk to 4-5 insurers or visit their websites to get premium rates
- Choose the plan that has the lowest premium at your parameters
- Undergo medical tests, if required
- Keep the nominees informed
- Pay premiums every year
Important:
- Buy floater plan to cover entire family
- Opt for a cashless plan, keep cashless mediclaim cards at hand
- Ask insurers for premium rates to find the cheapest policy
- Keep an eye on exclusions and inclusions in the policy
- Undergo medical tests, if required
- Buy health insurance even if you have one from your employer
- Save regularly
Care of all family members
You may not care about your health, but you sure do care about your finances. With healthcare costs rising at more than 15 per cent a year, having a health insurance is becoming a necessity.
These policies are of three types — the first covers basic hospitalisation needs; the second critical illness; and the third daily hospital cash reimbursements. Even life insurers offer health covers with defined benefits.
Under these, a pre-specified amount is paid as compensation, irrespective of the expenses incurred. With or without a family, you need a health cover. For those who have a family, we recommend a family floater instead of a standalone policy since the probability of all family members needing hospitalisation at one go is remote.
Even if your employer offers group medical insurance, get your own cover. A change of job could leave you without insurance, and so could retirement. And, getting a fresh cover after 45 is difficult.
Think of insurance as “hardship avoidance,” not “convenience” or “hitting the jackpot.” Contrary to some common perceptions, insurance is not a rip-off. For most people, it is a necessary and valuable financial service.
Accident policies only cover bodily injuries due to accidents
Accidents don’t just happen on the roads. You may meet with one if you slip in your bathroom, or trip down the staircase in your office, or fail to see the next step in the darkness of a cinema hall.
One careless step could render a double blow to your finances — your healthcare spending increases as you undergo treatment and your income stream gets disrupted until you recuperate. It is here that accident insurance plays a crucial role.
In India, you have two major options to cover the risk from accidents. First, are standalone personal accident insurance policies (PAIP) available with general insurance companies. Second, you can get it as a rider along with a life cover.
Accident policies only cover bodily injuries due to accidents, which are external, violent and visible, as the definition goes. It covers you for four contingencies that may arise from an accident — death, permanent total disability, permanent partial disability, and temporary total disability.
Like benefits from all insurance policies, buyers need to understand how these contingencies are defined in the policy. When you go for a PAIP, opt for a comprehensive cover of the four contingencies even if you have the option of covering one, two or three of them.
Important:
- Choose your preferred insurer as premiums are the same across insurers
- Provide income and profession details to the insurer
- Insurer determines your risk category
- Pay the premium based on risk category
- Opt for comprehensive cover to include disability
- Receive certificate and check its terms and conditions
Important:
- Talk directly with insurers or brokers while comparing premiums
- Negotiate on discounts
- Check if there is deletion of any clause or benefit
- Opt for co-payment/deductible to lower premium outgo
- Make sure benefit of no-claim bonus is added, if available
- Receive the original policy certificate/cover note
The insured and the insurance company
Not having a cover for your vehicle is like driving one at night without switching on the headlights.
You need to compulsorily take a third-party insurance, or third-party liability cover, sometimes also referred to as the ‘act only’ cover, when you buy a vehicle. It is referred to as a ‘third-party’ cover since the beneficiary of the policy is not the two parties involved in the contract — the insured and the insurance company.
It covers the injuries to a third person, or damage to the third person’s assets. But, it is better to go for a comprehensive motor insurance.
You can negotiate for a discount while buying. Also, soon general insurers would be able to price the premium on the policy wordings. As a buyer, you will need to understand how the wordings of the policy would affect your premium. Factors like the driver’s age and record, the type of vehicle and usage could determine the premium in the future. For now, look for lower rates without compromising on any of the clauses or feature.
Always remember, to transfer your no-claim bonus to the new car, if you are replacing your old one. This way, you would be able to save 20-50 per cent on the first premium of your new car.
For most Indians, buying a house is the most cherished dream and probably the biggest investment of life. Home insurance not only covers your dwelling against unpredictable events, such as a terrorist attack or an earthquake, but also your valuable personal property, such as consumer durables and jewellery.
The premium is less than 1 per cent of the actual cost of the contents or structure covered. You can also opt for a long-term cover by paying a lumpsum premium. In terms of cost, the policy gives you two choices — cover against the present market value and against the reinstatement value, or the value at the time of the claim. Opt for the latter.
You can either opt for a standalone fire insurance policy (FIP), or a more inclusive householder package policy (HHP). FIP only protects the building of your house against fire and allied perils like earthquake, lightning, storm, floods and riots. HHP, meanwhile, covers the contents of the house against burglary and mechanical or electronic breakdown, in addition to covering the building and contents against fire and other perils. HPP even offers other covers like public liability due to your negligence, personal accident (offers an income stream for the period you are temporarily disabled and a lumpsum payment in the case of death or total disability), workmen’s compensation (covers you against injury or death of your domestic help) and baggage loss.
Remember, it’s never too late to buy insurance. So, if you don’t have the must have five, buy them now.
Important :
- Choose your preferred insurer
- Compile a list of belongings
- Keep handy the purchase bills of high value items
- Segregate items according to perils
- Opt for personal accident cover or other add-ons
- Receive the policy certificate
- Save regularly