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What Type Of Insurance Do You Really Need? Assess Before You Buy

Last updated on June 11th, 2018

Insurance is an important aspect of financial planning. It offers financial assistance to the family of the insured in case of any unforeseen emergencies. Insurance needs differ from one individual to another. The type and cover of insurance required by an individual depend on a lot of factors like the income, family size and requirements, lifestyle, profession and professional risks.

There are different types of insurance products offered by insurance companies in India. Individuals should choose a product depending on their circumstances and requirements. It is advisable to consult an experienced and qualified financial planner to recommend the right types of insurance products. However, experts recommend having these four types of insurance covers to offer financial support in times of emergencies.

Life insurance

Life insurance is an important cover, and ensures support for the financial needs of your family, in the unforeseen case of loss of life. It offers the required financial cushion for your dependents to take care of the expenses and maintain a dignified lifestyle, even when you are not around. The amount of the life insurance cover should be at least 10 times of your annual income. While it is essential to have life insurance, determining the sufficient coverage amount is of extreme importance. Consider expenses such as funeral expenses, loans, lifestyle expenses and cost of future education of your children to determine the estimated coverage required by your family. There are three types of life insurance. Term plans, endowment, and ULIP plans.

 

Term life insurance

Under Term insurance, you need to pay the premiums of the policy for a predetermined period and enjoy the benefits of the policy for a long time. For example, a term insurance policy may last anywhere between two to twenty-five years. Pay the premium for a set period and enjoy the insurance coverage. The insured receives a lump sum amount after the end of the term depending on the terms and conditions of the policy. This is considered to be the best and cheapest option too to get covered.

Endowment plan & ULIP

Endowment Plans differ from term plans in one critical aspect i.e. maturity benefit. They offer insurance plus investment. They pay out the sum assured, along with profits, in both scenarios – death and survival. However, endowment plans charge higher fees/expenses which are reflected in premiums. The profits are an outcome of premiums being invested in asset markets – equities and debt.

ULIPs are a variant of traditional endowment plan. They offer insurance plus investment opportunity. They pay out the sum assured (or the investment portfolio if it is higher) on death/maturity. Performance of ULIPs is linked to markets. One can choose the allocation into equity and debt. ULIPs look similar to mutual funds but the fees and expenses in ULIPs are higher than mutual funds.

Invest in term plans than investing in endowment and ULIP plans. Do not invest in ULIPs and Endowment plans as the hidden charges are high and the amount that is actually invested is very less than it was initially intended to.

Health insurance

With the huge costs involved in healthcare, having a sufficient healthcare cover is essential for families. The health insurance provides required financial assistance to take of unforeseen medical emergencies. Health insurance helps the insured take care of the hospital admission charges and other medical and diagnostic charges. This safeguards the families from losing all their savings, in the event of a health emergency faced by a family member. The insurance cover amount that you should look at is  5-25 lakhs. This will vary with the place you live too. If you are living in a metro city then a higher amount of insurance is suggested. If you have kids then the upper limit of Rs 25 lakhs is considered the minimum.

  • Critical Illness Insurance: High medical expenses, lifestyle changes, and serious illnesses can hit an individual anytime. Living in a metro city is even more expensive when it comes to health issues being treated. With a critical illness insurance cover, you can rest assured that you are covered for the major illnesses. Ideally, about 59 – 65 critical illnesses are covered in this type of insurance coverage.

Personal accident insurance

This is the most important cover needed by individuals who drive a car or ride a bike. A sudden accident may lead to a permanent or partial disability of the working member of the family, which hampers his earning capability. This may be a huge blow to the family, especially if the only working member has met with an accident. This type of insurance cover cushions the insured from any such possibilities. Most insurance companies offer personal accident insurance cover with their life or health insurance policies.

Auto insurance

Having a certain level of auto insurance is mandatory as per the legal regulations if you own a vehicle. But having adequate coverage helps the vehicle owners to cover the costs in case of theft or damage to the vehicle. There are many types of auto insurance products offered by different insurance companies. Talk to your advisor and select a suitable auto insurance policy.

Own damage insurance cover

This coverage covers the additional liabilities and comes handy when your vehicle is stolen or damaged

Third-party damage insurance cover

When the vehicle is damaged in an unfortunate accident due to a third-party.

Conclusion

Remeber that your life insurance should be 10 times of your annual income. Your health insurance should be somewhere around Rs 5-25 lakhs. Having sufficient coverage is very important for all the insurance policies. Insufficient cover poses a substantial financial threat in times of emergencies. While paying premiums may seem to a burden, the financial cushion, it offers during emergencies is of great help.

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