Be Sure To Be Insured
Feb 02, 2018 | 15:03 PM IST
Feb 02, 2018 | 15:03 PM IST
There is a risk in every walk of life. From crossing the road to travelling by air, there is a certain amount of risk that you have to bear in all the activities. Sometimes the risk is minor while sometimes it is life-threatening. Risk simply means a possibility, a possibility that a certain thing might go wrong. It may not necessarily happen but you can't rule out its impending presence. Let's try to understand the risk with the help of an example. Imagine, you go to watch a film with your friends only to find out that all the tickets have been sold out. In this scenario, you didn't do the proper planning and risk assessment. Hence you ended up disappointed. But what if you had already thought about it being sold out and have made an alternate plan for some other theatre? That's what we call risk management. When you are certain that certain things might happen you make provisions to save yourself from the impact of it happening. This is where Insurance comes into the picture.
What Is Insurance?
Insurance is a tool for risk management. It's a contract where an insurer and insurance company enter an agreement to compensate the insurer in the event of damage or loss of the insured property. The property can be anything like a car or health or a life. Insurance is quite simply a safeguard against the risk of possible financial loss/damage in the future. Insurance is a way of obtaining financial peace of mind against the uncertainties and risks in life. There are various types of insurances i.e life, health, auto, fire, etc..
Do I Need Insurance?
Every individual, at least once, asks him/herself whether he/she needs insurance. Here's a ready reckoner for you to determine whether you need an insurance cover or not. If you answer all the below questions as 'yes' then, by all means, you need an insurance cover.
1. Are you married and have or thinking of starting a family?
2. Are you a working professional with aspirations to buy a home, car, etc?
3. Are you aware of the healthcare expenses and its ability to burn holes in your pocket?
If yes, then not only you need a life insurance but also a health and automobile insurance to keep your life happy and balanced.
Types Of Insurance
There are various other types of insurance like property insurance, marine insurance, energy insurance, fire insurance, etc. However, these are insurance covers which should be taken as and when the need arises. We will only discuss the types of insurance covers which every individual ought to have..
As the name suggests life insurance gives you a cover from the uncertainty of life. It becomes extremely important if you are married and support a family. In the event of the demise of the breadwinner of the family, the life insurance policy can meet several financial needs of the family. An adequate life cover can help the bereaved family to replace the lost income and to pay any residual debt of the insurer and also helps to pay for children's college education and household expenses..
If you don't have a life insurance it's high time you should get one. The term plan is the best life insurance as it gives you maximum cover at an extremely low cost. Not only it gives you a life cover but it sets you free from getting an additional life insurance and lets you focus on wealth creation. Another thing to remember while getting a life insurance is that never get lured by the prospects of maturity benefits of the Moneyback policies. These policies give you a certain amount at the end of the term but this amount is extremely low which eventually becomes insignificant in the rising inflation. Moreover, the premium of such policies is pretty high compared to term plans..
Remember, with whether it's term plan or a life insurance your ability to get covered depends on your age and health profile. The younger and healthier you are, the lower the cost of insurance. Therefore sooner you get the life cover better it is. We will discuss the prospects of term insurance and it's significance in detail in the latter part of the article. LIC and many other private insurance companies provide life insurance..
Health Insurance/Medical Insurance
Just like life insurance, health insurance is one of the most important types of insurance that you ought to have. Your good health is what enables you to work and earn money and enjoy a good life. In future, if you suffer from a serious illness or have an accident it will naturally hamper your personal and professional life. Furthermore, there would be a pile of fat bills to foot. If you are not insured you will have to pay this from your pocket. Thus buying a health insurance for yourself and your family makes sense..
These days you get health insurance from your employer. Most of the employers give health insurance benefits to their full-time employees. If you're married, you and your family may get coverage under the same plan that your employer provides. If your health is not covered by your employer then you should look for a good health insurance coverage on your own. When you opt for an insurance always consider the factors like premium costs, whether it is cashless or a reimbursement policy, hospital network, etc. The added advantage of health insurance is that under section 80D your can claim tax deductions. Star Health Insurance is one of the leading health insurance provider in India..
Auto insurance is also known as motor insurance is the type of insurance that provides cover for loss or damage to any vehicle like car, two-wheeler or commercial vehicle, etc. Auto insurance helps to mitigate monetary losses due to accidents causing damage to the vehicles. Some motor insurance also cover the loss due to theft. The premium amounts that are payable by the person opting for insurance for his/her vehicle depends on several factors like insured declared value, type and make of the vehicle, age of the vehicle, fuel type (Petrol/Diesel), the age of the insured, etc. The maintenance cost of any automobile is considerably high. The general maintenance might not be covered by the auto insurance but damage by accident and fire is most certainly is. Auto insurance gives you protection net from paying a steep cost for your car and bike damages..
Say No To Investment In Insurance
In financial planning, insurance has extraordinary importance. It plays a crucial role in risk management and in the event of an unfortunate occurrence helps your financial plan from going astray. However, for ages people have committed a blunder of looking at insurance as an investment instrument. It is NOT! One of the reasons for this is that many insurance companies used to project insurance policy as an investment medium. Moneyback policies where you have to pay a hefty premium does give you an insurance cover, but of an extremely low amount. The reason being, as the insurance company has promised insurance cover as well as moneyback benefits after a certain period, they have a dual responsibility. Now to give you returns they have to charge you high premium, a part of which they have to invest in order to give you 'Moneyback'. This increases the operating expenditure of the company. As a result, it fails to give both - an adequate cover and good returns. As a responsible investor, you don't want to pay a bomb every quarter for years to get peanuts at the end of the term, do you? That's what insurance companies have been giving their patrons for ages..
Thankfully, people, these days have set their priorities right. They invest in mutual funds and equity for returns and buy term insurance for insurance cover. A welcome change indeed.
What Is Term Insurance?
Term insurance is a life insurance cover, it gives coverage for a defined period of time, and if the insured expires during the term of the policy the nominee is eligible to get the death benefit. Term insurance is specially designed to secure your family's requirements in case of death of the insurer. Sounds just like any other insurance plan, right? Well, it is not. The thing that makes term plan extremely attractive is that it provides a considerable amount of coverage for a specific period of time at an extremely low cost. As term insurance is the purest form of insurance, there is no survival or maturity benefit when the policy term expires..
As the insurance companies don't have the obligation to give maturity benefits the premiums for term plans are the lowest among all the types of life insurance policies. The investment part and the entire premium goes for covering the risk. In the event of policy holder's death during the insured term, the death benefit is paid to the nominee. To put it in simple words, term insurance is like auto insurance where you just pay the premium to cover the risk without expecting any maturity returns..
Tax Benefits Of Insurance
The primary objective of insurance is to give you a risk cover but there is another advantage of buying insurance - tax saving. To encourage people to buy insurance the government gives certain tax concessions to those who pay insurance premiums in a disciplined manner. Under section 80C, 80D & 80DD you can claim tax deductions. If you are paying premiums for a life insurance policy then you can claim up to Rs.1,50,000 deduction under section 80C. For health insurance, you can save income tax based on costs incurred for preventive health check-ups during the term of the policy. The limit of tax exemption under Section 80D of Income Tax Act is Rs.25,000 if you are under 60 years of age and Rs.30,000 for senior citizens. Also, you can claim an additional benefit of coverage against preventive health check-ups of up to Rs. 5,000 every year..
Dos & Don't Of Insurance
Always buy Life Insurance, Health/Medical Insurance & Auto Insurance..
For life insurance, always prefer term plan.
Buy life and health insurance when you are young to save on high premiums.
Dont 'invest' in insurance. Its primary function is to protect you from risk.
Don't go for every attractive plan, check your requirements.
Don't use insurance as a tax saving tool. Tax saving is just a byproduct.
Insurance - A Key Component Of Personal Finance
Personal finance is all about getting utmost value out of your money. Amongst its various branches, one is insurance. Insurance plays a critical role in the scheme of personal finance - it helps you to mitigate risk in life at the same time it gives you peace of mind. Let's understand why insurance works as a lubricant in the engine of personal finance. Let me illustrate my point with an example. Imagine you are working hard to reach your financial goals. You are systematically following an investment plan. Unfortunately, a fire breaks out in your garage and chars your expensive car.
Now you have two challenges - 1. Raise money to buy a new car 2. To make adjustments in other investment and expenses to cover the hole caused by this big, unexpected event. Undoubtedly you will recover from this phase but due to it will throw you at least two year behind your schedule to achieve your goals. But had you insured your car, you would have got immediate compensation to buy a new car and your financials would work as smoothly as they were before. That's why insurance is often called the guardian angel of your personal finance.