Insurance helps individuals and businesses protect themselves from financial losses. There are various types of insurance policies available in the market. However, experts generally recommend getting the following four essential insurance covers:
Life insurance provides financial protection to your family in case of your untimely death. It pays out a lump sum amount called the sum assured to your nominated beneficiaries.
Life insurance is highly recommended because:
- It covers the risk of premature death and the resulting loss of income. Your family may struggle to maintain their lifestyle without your earning.
- It pays for your child’s education and other goals in case you are not around.
- It covers expenses like funeral costs.
- It provides financial security to your surviving family members.
There are different types of life insurance policies:
- Term life insurance – Provides coverage for a specified tenure. It pays out the sum assured if you pass away during the policy term. It is the most affordable form of life insurance.
- Whole life insurance – Offers lifelong coverage. The premiums are higher than term plans as the coverage is long-term.
- Endowment plans – Provide coverage till maturity. If you survive the tenure, you get the sum assured along with bonuses. If you pass away during the term, your nominee gets the benefit.
- Unit-linked insurance plans (ULIPs) – Offer investment along with insurance. A part of the premium is invested in equity and debt. It provides insurance as well as market-linked returns.
The life insurance cover you need depends on your income, expenses, debts, dependents, and other factors.
Health insurance covers your hospitalization and medical costs in case of illness or injury. It pays out the expenses towards doctor fees, medicines, hospital charges, diagnostic tests, etc.
Health insurance is a must because:
- It pays for expensive medical treatments like surgeries, cancer treatment, dialysis, etc. which can blow up your savings.
- It covers ambulance charges and other hospitalization costs.
- Treatments for critical illnesses involve huge costs running into lakhs or crores. Health insurance provides financial security.
- It covers pre and post-hospitalization expenses incurred 30-60 days before and after hospitalization.
- Tax benefits are available on health insurance premium under Section 80D of the Income Tax Act.
There are two main types of health policies:
- Indemnity plans – They provide cover up to the sum insured for hospitalization expenses. Examples are individual health plans and family floater policies.
- Fixed benefit plans – These provide a fixed lump sum payout for an illness/procedure irrespective of the actual cost. Examples are critical illness plans and hospital cash policies.
The ideal health cover depends on your income, location, family health, etc. A ₹5-10 lakh indemnity plan along with a ₹10-30 lakh critical illness cover is advisable.
Motor insurance is mandatory for all vehicles plying on public roads. It protects against financial losses related to your vehicle. There are two main covers under motor insurance:
Third Party Liability Cover
This is mandatory as per the Motor Vehicles Act. It covers injury or damage caused by your vehicle to a third party – person or property. It pays for:
- Third party death/disability
- Third party property damage
- Legal/court costs
Own Damage Cover
This is an optional cover that pays for damage to your own vehicle due to:
- Fire, explosion
- Natural calamities
- Transit by road, rail, air, elevator
It pays for repair or total loss of vehicle. Add-ons like zero depreciation cover, engine protector cover further enhance protection.
So motor insurance ensures you do not have to pay hefty amounts if your vehicle is damaged or causes damage/injury to others.
Home insurance protects your home and its contents against damage. It covers loss due to man-made and natural calamities.
Home insurance is essential because:
- It pays to repair/rebuild your house if damaged in fire, earthquake, floods, etc.
- Covers theft of home contents like furniture, electronic items, valuables, etc.
- Pays for alternative accommodation if your house is uninhabitable after an event.
- Protects documents kept at home like property papers, licenses, certificates, etc.
- Covers legal liability in case someone gets injured at your home.
- Provides add-on covers like appliances protection to enhance coverage.
The right home insurance cover depends on your home type (independent house or apartment), location, contents, etc. Also, take inflation into account while deciding the sum insured.
Why are these four insurance types essential?
Here is why you need the above four insurance policies:
- They protect against the biggest risks faced by individuals – death, illness, asset damage, and liability.
- Risks like premature death, critical illnesses, and accidents can derail finances if uninsured.
- Treatment costs are rising exponentially. Health insurance prevents medical shocks from wiping out savings.
- Property damage can cost lakhs for repair/replacement. Insurance covers such expenses.
- These policies provide comprehensive coverage at reasonable premiums.
- They offer peace of mind and let you enjoy life without worrying about uncertainties.
- Insurance allows your family to maintain their lifestyle even if you are not around.
- Lastly, these four covers are recommended by experts as core insurance for individuals.
So in summary, life, health, motor, and home insurance should be the foundation of your insurance portfolio to get all-round protection. Other policies can be added later if required.
What are some tips for buying the right insurance covers?
Here are some tips to follow when purchasing the recommended insurance policies:
Understand the risks – Evaluate your risks based on lifestyle, health, vehicle use, home location, dependents, debts, income, etc. This helps choose suitable covers.
Check claim settlement ratio – Choose insurers with highest claim settlement ratios for assurance of claim payouts.
Adequate coverage – Pick sufficient sum insured and avoid underinsurance. Account for inflation and future needs.
Compare – Compare premiums and features across insurers. Opt for plans that offer best value.
Add-ons – Use value-added covers like zero depreciation in motor insurance for enhanced protection.
Review periodically – Revisit your covers to ensure they meet your changing needs. Enhance sum insured if required.
Tax savings – Opt for plans that offer tax benefits under Section 80C and 80D. Save tax while getting insurance.
What are some frequently asked questions regarding essential insurance?
Here are answers to some common queries on buying the right insurance covers:
Which insurance is more important – life or health?
Both life and health insurance are equally critical. Life covers death risk while health protects against medical shocks. I would recommend buying adequate life and health covers as per needs.
Should I buy multiple small policies or one large cover?
One large cover is better as it offers higher sum insured. For instance, buy one ₹1 crore term plan rather than multiple ₹10 lakh term policies.
Are cheaper products better insurance buys?
Not necessarily. Cheaper products may have limitations or inadequate coverage. Do not compromise on coverage just for lower price.
Is online purchase of insurance beneficial?
Yes, online purchase directly from insurer site cuts agent commission resulting in discounts. Products are cheaper by 10-15% when bought online.
Can pre-existing diseases be covered by health insurance?
Yes, but only after 2-4 years of continuous coverage. Before that, pre-existing diseases are excluded.
Life, health, motor, and home insurance must be part of everyone’s financial plan. They offer comprehensive risk protection at affordable premiums. Make sure you understand your risks and insurance needs while buying covers. Stay adequately insured, follow the claim process, and periodically review policies. This will ensure full protection for you and your family.
So in summary, make these four insurance types the foundation of your risk management strategy. They will provide you the safety net to fulfill your financial goals despite the uncertainties of life.