What if you are hospitalised and end up with the hospital handing a bill of Rs 5 lakh? What if your car meets an accident and the repairing cost adds up to Rs 2 lakh? What if your shop catches fire? What if some robbery happens at your home? What if something happens to you and your family faces a liability of Rs 50 lakh? Have you given a thought on how you would bear such high costs?
Having insufficient money can get you or your family in serious trouble if you are not able to pay your dues due to insufficient funds. Here is where insurance steps in to protect you. However, when buying insurance, you should consider two things which are - protection and loss recovery.
Vinay Taluja, EVP and Head Cross Sell Landmark Insurance Brokers said one must have insurance cover for all risks because it provides protection from exposure to hazards and probability of loss.
Insurance, by design, is meant to be a risk transfer tool. The risk is defined as the possibility of loss or injury and insurance is concerned with the degree of probability of loss or injury. Through insurance, the insured person transfers risk to the insurance provider. This could be the risk of one’s home being damaged, one’s car getting stolen, incurring steep medical expenses, getting injured in an accident, or even losing one’s life.
Harsh Gahlaut, CEO, FinEdge told Moneycontrol that generally, most people in India have poor understanding of insurance products. This applies to both life and non-life products. “The ‘premium’ paid is the cost that’s borne for offloading this risk to an insurance company. Every individual has the choice of either retaining or transferring these risks, based on his or her free will and objective judgment. The trouble arises when clients attempt to club their savings or investment needs with their insurance needs. They end up between a rock and a hard place, with neither their funds growing at an adequate clip nor their risks adequately mitigated,” said Gahlaut.
With the degree of understanding, let us have a look at some insurance policies available for you to safeguard yourself from several perils and hazards.
Term Insurance Policy
Term Insurance acts as a protective umbrella towards all your financial needs and want. It helps you secure your future at a very nominal cost. For instance, a healthy non-smoker 25-year male can cover his life for a hefty Rs 1 crore by paying an annual premium of as low as Rs 6000 approximately. Term Insurance pays off the sum assured to the nominee in case of demise of the insured person, ensuring a normal living for them in his or her absence. One should not delay the purchase of a term policy if they have dependant members on their earning.
Unit Linked Insurance Policy
ULIP along with term plan is an ideal life insurance portfolio. While term plan offers protection at a nominal cost, ULIP offers a long-term investment opportunity to build the corpus along with some component of protection. “Besides providing insurance, ULIPs are an ideal investment product that also provides tax-saving. It offers, low charges comparable to mutual funds and offers good long-term returns. It also offers the flexibility to choose the asset allocation depending on risk profile. You can set your medium to long-term financial goals around ULIPs as they offer maximum returns over a period of 10-15 years. ULIPS also offer you the flexibility of partial withdraw after 5 continuous policy years, if you have any financial need you can withdraw from your accumulated corpus any time after 5 years," Naval Goel- CEO and Founder of PolicyX.com said.
Disability Insurance Policy
We buy Life Insurance to protect our most valuable asset - income- but ignore disability cover to save the extra premium. This tendency can lead to catastrophic results.
Premanshu Singh, CEO of Coverfox.com told Moneycontrol that a permanent disability can lead to a loss of income, as an existing life cover comes into force only on death, thus, leaving you in a bind.
“Disability cover plays an important role in such a situation. Hence, one must buy a term plan with an in-built accidental death and disability benefit or total permanent disability benefit to cover this risk. You can even choose an appropriate rider for the same at the time of buying the policy or on the respective policy anniversary,” he said.
Health Insurance Policy
Today’s fast-paced, stressful life and growing pollution is leading to many health concerns for all Indians. Heart diseases, respiratory diseases, diabetes and cancer have become the leading killers in India. Rising health care costs and double-digit inflation in the health sector is making it financially difficult for us to get proper treatment.
“Doctor’s fees, hospitalization expenses, treatment cost, medical consumables and the cost of medicines is burning a deep hole in an average Indian’s pocket. All these factors have made buying a Health Insurance a must. A health insurance policy is an excellent means of protecting one’s savings from the axe of medical bills and securing good medical attention. And buying the right cover is the most important thing as you would want full coverage in the times of needs,” said Premanshu Singh.
Fire insurance policy
Fire insurance provides cover against property damages caused due to fire. It covers expenses incurred for the reconstruction, replacement and repair of the insured property. “The standard fire policy will not cover loss or damage caused by war, civil war and kindred perils; nuclear risks, or pollution or contamination. The fire policy covers only material damage. Any consequential losses— loss of earnings, loss by delay, loss of market or other indirect loss or damage of any kind—will have to be covered under a separate consequential loss policy,” said Navin Chandani, Chief Business Development Officer, BankBazaar.com
Burglary insurance policy
Burglary insurance typically protects from loss or damage due to burglary or housebreaking. It is a good precaution for those who go to work leaving the house unattended. Usually, the policy pays actual loss/damage to the insured property caused by burglary/house breaking subject to the limit of sum insured. “Unless specifically mentioned in the policy, acts of theft like shoplifting, items stolen from a safe using a key or duplicate key, etc., will not be covered under the burglary insurance. You should also check the policy clauses in case the insured property is unoccupied for a certain period of time,” added Chandani.
Motor insurance Policy
It is mandatory to have a Third Party Liability (TPL) insurance coverage for your vehicle in India. The TPL policy covers you against the legal implications of an accident caused by you. In case you cause an accident that any damage to the life and property of others, the liability of death, injury or damage to property towards a third party is borne by the insurance company. Having the right level of cover also provides financial protection in the event of your vehicle being damaged. It can also provide financial support if your car is stolen, vandalised or destroyed.
“Considering high incidences of own damages in the Indian context, it is always prudent to avail a comprehensive policy over the mandated third party policy. Motor insurance will not only cover loss or damage caused to the vehicle when driven by someone without a valid driving licence. It will also not cover loss or damage if the driver is driving under the influence of drugs or alcohol,” said Chandani.