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Insurance - One must weigh the pros & cons and be selective

The insurance market is flooded with many policies and schemes. While each has its own benefit, not all are needed.
Insurance is possibly the best financial tool to protect yourself as well as your valuables from unforeseen circumstances. In fact, you owe it to your family to get the best cover you can afford. However, while it pays to be smart about insuring your family and your valuables, it is even wiser to make out which policies are truly worthwhile, and which ones are redundant.

You need to know that while each cover has its own benefits, not all of them are needed in normal circumstances. Also, there are lots of insurance policies that use scare tactics to lure you in, and have premiums that are overpriced. And paying too much for protection can be a financial strain in itself. Therefore, you need to be selective in choice.

Insurance is the best known form of financial protection to guard against major uncertainties or vagaries of nature. As a thumb rule, a person needs to have at least a basic cover to protect himself in the form of personal accident insurance — which is the cheapest cover for self protection or health insurance to cover hospitalization expenses with a minimum sum insured of Rs 1 lakh. Assets like vehicle or home, which may be prized possessions, are also depreciating and as such need adequate protection from risks like accidents or natural perils.

Thus, the insurance that’s worth it typically covers your life, your health, your earning power or the assets you’ve accumulated during your lifetime. Primarily the five main types of insurance everyone should take into account are:

PERSONAL ACCIDENT COVER

It basically covers the risk of accidental death and permanent total disablement, and is a good choice to supplement a life insurance policy. The best part of it is that it is the cheapest cover for self protection and can be taken even by those whose income is low or cannot qualify for life insurance due to medical issues. Personal accident cover is also recommended in the early stages of life when one has just started his/her career and there is no need of insurance cover as the likelihood of death from natural causes is way too low to require a financially unencumbered person to take on life insurance. The more compelling insurance need at that stage is for a personal accident cover which covers the risk of accidental death.

Persons below the age of 40 have a bigger risk from death and disability due to an accident compared to any other risk. Disability for a young person can be a bigger tragedy than death. Personal accident insurance provides an extremely low cost option of covering this risk.

TERM INSURANCE

Once a person crosses 35 years of age, the risk of diseases and ailments starts increasing. The person also becomes more prone to lifestyle diseases. Now it is not uncommon to hear of persons who have died of a heart attack at the age of 30 or 35. Hence it becomes important to cover the risk of death due to reasons other than accident. Term insurance is a no frills, low-cost option to secure financial security for the family, and therefore should preferably be there in everyone’s insurance portfolio.

Every human being has a quantifiable economic value for his dependents. Any amount of loan that a person has taken gets added to this value. Protection of this economic value is very important, especially in India which does not have a strong social security net. A term insurance is the cheapest way to cover oneself for one’s Human Life Value (HLV)

CRITICAL ILLNESS COVER

By opting for this cover, you can insure yourself against the risk of serious illness in much the same way as you insure your car and your house. Under this cover, a guaranteed cash sum is paid if the unexpected happens and someone is diagnosed with a critical illness such as cancer, stroke and kidney failure. The benefit amount is payable once the disease is diagnosed meeting specific criteria and the insured survives 30 days after the diagnosis.

This is, in fact, a very important cover for persons who have crossed 45 years of age. Although a health insurance policy covers hospitalization expenses, critical illness involves a lot of expenditure even when the person is not hospitalised. Expensive medicines and diagnostic tests, regular doctor visits, special diets etc. add up to a lot of money. A critical illness policy provides financial stability by providing upfront money to the insured for all the treatment.

HOME INSURANCE

Your home is not just your most valuable asset, it’s your safe haven from the world outside. However, while your home cocoons you and your family, it’s your responsibility to see that nothing untoward happens to the building and its contents. Therefore, insuring your home is as essential as ensuring that it has strong foundations.

A home insurance policy, also known as householders’ insurance, is the best bet to safeguard your house because it not only covers the structure of your home but also all its valuable contents from different kinds of perils such as earthquake, terrorism, flood, burglary and house-breaking all of us have observed that the weather has become very unpredictable and vicious in the last one decade. The unpredictability of weather, its extremes and increasing crimes in urban areas are reason enough to take this policy.

PENSION PLAN

Retirement need arises when individual reaches such a stage in life when one does not anticipate future inflows and he/she has to provide for a regular inflow out of the money that a person has accumulated. So all your accumulated wealth has to ensure that you go through the golden years of life without any worry. A good retirement plan allows you to accumulate for your golden years in a systematic manner. You could consider single pay/short pay pensions or immediate annuities for such a need. A flexible unit-linked endowment structured with regular partial withdrawals could be suitable for such a need.

Thus, if you are unable to afford all types of insurance, just stick to the basics and you will be fine!

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