Insurance
All About Insurance - What is Insurance, and why do you need it?
A new dawn brings with it hopes and ambitions, which help us grow in life. While being optimistic is a positive trait, we need to be prepared for the snares which no one would want to hear about or experience, such as the loss of a loved one or an unfortunate accident.
Unless you are flush with cash, you may face a financial struggle when handling such as situation. This is where insurance comes into play. Insurance has to be an integral part of every financial plan that you make, especially if you have family members who rely on you financially. You need insurance to safeguard your life, your health, your vehicle and your ability to sustain your livelihood when things go wrong.
What is Insurance?
Insurance simply refers to the protection for which you pay a particular fee to the insurance company (insurer), who in return pays for the financial loss you may have to bear in case of any harm. In this way, the risk is mitigated. For example, if someone gets hurt in a car accident. Their health insurance plan will cover their hospitalization expenses and their motor insurance will pay for the repair of the car.
Every precious thing, be it life, health or gadgets, vehicles, houses, etc. can be insured. All you have to do is purchase an insurance policy from your preferred insurer, pay the fee (called a premium) as agreed and rest assured of the opted coverage. Different insurance plans have different features and benefits attached.
Why Do I Need Insurance?
When discussing the need for insurance, needless to say, that covid was a wake-up call. It caught us off guard. The harsh pandemic changed everyone’s perception of insurance. Most of us felt the need to have a decent financial backup that could help us meet unforeseen healthcare expenses, and even the loss of life of loved ones. And while there isn’t really a one-size-fits-all explainer when deciding the kind of insurance you may need, the best way is to evaluate the importance of insurance in varied situations.
Imagine exhausting all your hard-earned savings for medical treatment or a big chunk of money in repairing your vehicle. That’s not what you were toiling to save for. So, in order to keep your finances safe, you must have insurance for all the expensive and priceless things in life including life itself.
How can Insurance be a part of My Financial Planning?
You may have the seemingly perfect savings and investment plan where you could easily grow sufficient capital. But what about the unexpected financial needs of life? Are you well-equipped to fight against such situations?
Having savings or an emergency fund may not always be sufficient to cover the losses an unfortunate incident may cause. Treatment of critical illnesses or repairing your car/ bike after a motor accident or damages caused due to natural or man-made disasters can squeeze out all your savings before you know it. However, if you have sufficient insurance coverage for health, life, home and motor, you may not have to muddle your savings. Your insurer pays all the admissible expenses so you have the financial balance maintained in your life.
What are the Different Types of Insurance?
In today’s time, it is quite common to see people have one or more types of insurance plans. So, how to figure out if you need any more insurance plans while you already have one? Let’s check out. Here is the list of different types of insurance plans that you can purchase as per your insurance needs:
As a breadwinner in the family, one’s major concern is to secure the family financially as far as possible. But what about the times when you may not be around anymore?
This is when a life insurance cover helps the family cope with financial needs. As agreed upon at the time of purchasing the policy, the insurer pays out the lump sum amount to the nominee if the insured pass away during the policy tenure. Some insurance plans offer the dual benefit of protection as well as savings and pay out a significant amount at the time of maturity.
Life insurance plans are of broadly two types:
- Term insurance plans:
A term insurance plan is a pure protection plan that typically comes with no returns. It is meant for a specific tenure during which if the insured individual passes away the nominee receives the death benefit. The tenure of a plan can be as short as 10 years to as long as 80 years. - Whole life insurance plans:
A whole life insurance plan is also called an unlimited-term plan. It covers an individual till the age of 99 or 100 years. When the insured dies, the family receives a pre-determined payout. If you wish to leave a legacy for your loved ones, a whole life plan is an ideal option. - ULIP:
A unit-linked insurance plan offers you dual benefits. One portion of your premium is allocated towards life coverage while the other is invested in market-related funds, giving you the opportunity to build a significant corpus. - Endowment plans:
A life insurance policy that allows you to protect your family’s future in case of your absence while allowing you to save regularly. In case of the death of the insured, the nominee receives a death benefit. If the insured survives a maturity benefit is payable. - Money back plans:
Another life insurance policy that allows liquidity at regular intervals. These plans while offering you security also help you manage your short-term goals. - Retirement insurance plans:
As the name suggests, these plans help you build a significant corpus for your golden innings. You can ensure the financial well-being of your loved ones, especially your spouse, with such a plan. - Child insurance plans:
A vital savings plan suitable for parents who wish to safeguard their child’s future. Wealth boosters and loyalty additions are features that can add greatly to your overall savings.
As the name suggests, a personal accident cover comes into the picture when the insured suffers physical injury due to a personal accident. The cost of medical treatment is covered by the insurer. PA covers death and disability as well.
All insurance plans, other than life insurance, fall in the category of general insurance. While insurance covers are available for travel, cyber security, home and property, and even pets, the most popular ones are:
- Health insurance
Health insurance plans are purchased with an aim of receiving medical expenses when the insured suffers a health crisis. There are different types of health insurance. Indemnity plans cover the cost of hospitalisation, while fixed benefit plans offer a lump sum payout in case of diagnosis of illnesses like cancer, cardiac diseases, etc. - Motor insurance
Vehicles like two-wheelers, four-wheelers, and commercial vehicles can be insured under motor insurance. As per the Motors Act of India, 1988 having a minimum of third-party liability insurance is mandatory for every motorised vehicle. - Property insurance
Personal houses and commercial buildings can also be insured by paying premiums. In case the building gets damaged due to natural or man-made disasters, the repair costs of the building structure are covered by the insurer.
I have Health Insurance so do I Need Life Insurance?
If you have this question in mind, it is very essential to understand that life and health insurance are two different types of insurance plans that serve two very different purposes. Health insurance provides medical expenses in case the insured requires hospitalization. On the other hand, life insurance provides a lump sum amount to the nominee in case the insured dies during the policy tenure. There is generally no coverage for medical expenses under life insurance coverage or vice versa. So, if everyone else in the family is self-dependent financially, you may skip life insurance.
Now, let’s discuss if you need life insurance if you have health insurance. Even if you have a big life insurance coverage, it would not be of any use to you if you need finances for your medical treatments. Life insurance ensures financial stability for your family even when you are no longer around. However, it won’t cover your hospital bills.
