Without them your financial security is at a huge risk...
One of the most often heard statements is insurance cover is very important, and everyone needs to be covered for various risks -- however, which covers are crucial and which are 'good to have'? There are some covers which are very important -- such as life, health, vehicle, etc. While other covers are optional: for example travel insurance, pet insurance, etc. Let us look at four major covers that everyone must have.
A life cover is useful for everyone, as it gives your family and dependents years of financial security. In case you face an unfortunate event the insurance company pays the insured amount to your family and heirs. While choosing a life cover there are several aspects to consider, especially deciding on the sum assured. Apart from the usual ball park of 10 times your annual income, there are various other factors to be considered.
One should first and foremost take into account your situation in life with regard to dependents; the more the dependents it will result in a higher sum assured as this money has to be used by your family in case of any eventuality. The premium that you pay qualifies for a tax deduction so long as the annual premium is at least 10 times the sum assured or the insurance cover.
This is another crucial insurance that everyone needs, especially since medical expenses are rising, meaning that any illness can burn a hole in your pocket at time when one cannot afford it. Typically, most insurance policies are basic policies, in such that they cover only the regular medical expenses such as pre and post hospitalisation expenses, waiting periods for pre-existing illnesses, expenses and loads, and no claim bonuses.
Apart from this basic plan, one can also look at opting in for a critical illness plan, which can be purchased as a separate product or as an add-on to your basic health insurance policy. A critical illness plan is simply to put an insurance plan that will payout a lump sum if the person insured suffers from any major illness.
One should also ideally opt for family floater plans, which as the name suggests covers your entire family in the medical insurance, thereby saving a lot of money and hassle in the event of any unforeseen illness.
Since vehicle insurance is mandated by law, most people stop with taking the basic policy. However, a comprehensive cover will be better in the long run as it can save you unnecessary expenses when your vehicle has the invariable dust up (given the road and traffic conditions in India -- this is more than likely). Insurers also give discounts for having extra safety gear installed, being accident free, etc.
All insurance companies charge a deductible, which is the initial amount that has to be paid by the claimant, post which other expenses will be borne by the insurer.
People typically opt for smaller deductible, as even minor repairs will be covered by the insurance company. However, taking a larger deductible will be beneficial as the premiums will come down, and if one doesn't lay claims for minor repairs, the 'no claim bonus' will also accrue (this can save over 50 per cent in the premiums over time).
Another very important cover is the home insurance, which typically can be taken by both home owners and home renters. This normally covers aspects such as damage due to natural disasters, fires; protection against theft; sub-protection for your electronics, jewellery, etc.
This helps cover the cost of any unforeseen event -- and since for people their house/home is their most expensive asset, any damage to the property is liable to cause significant financial damage as well. It is advisable to go in for this cover irrespective of if you are renting the property or if you own it.
There are 4 very important covers to take:
- Life cover: It should be at least 10 times the annual income
- Medical cover: It is crucial, but you must ensure that all pre-existing illnesses are disclosed in advance
- Auto insurance: It is better to go in for comprehensive insurance
- Home insurance: It is crucial to protect your asset
Photographs: Marlon Malabanan/Creative Commons
Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.