Top 5 Insurance covers needed in every person’s kitty
Insurance is a word that is often heard when talked about investment. It can be best explained as a safety net or a blessing at the time of crises. A majority of people consider insurance just from the point of view of a tax-saving instrument and mostly buy life insurance. However, there are many types of insurance covers that are quite essential for a person to have. While life insurance can provide a safe future for the family of the deceased if he/she was the sole breadwinner, other types of covers like health insurance or vehicle insurance will help in the event of a medical emergency or an accident.
Insurance is often considered to be unnecessary, especially by young people in their 20s. They usually think of it as a waste of money and rather prefer spending on high-risk high-return investments like stocks, futures, and options, etc. However, according to a majority of experts, 20s are the best time to get an insurance cover as the cover value can be high and the premiums for them will be quite low. Moreover, these plans do not require an agent to be the middleman between the insurer and the person insured anymore as they can easily be bought online depending on a person’s needs.
Here are the top 5 insurance covers that are essential for a person to have in today’s day and age.
Life insurance is one of the most common types of insurance in India. Life insurance is a cover that a person can take to insure themselves for their lifetime. In the event of the death of the person insured, the nominee or the family members of such person will get the benefit of life insurance cover that was purchased by the deceased person. The insurance premium depends on the amount of cover and the age and health of the person to be insured.
In India, on average, a person is insured for approximately only a fraction of the cover needed to protect their family in the event of the death of the sole breadwinner. As a general rule of thumb, a person looking for life insurance has to get a cover amount that is a minimum of 6-8 times their monthly income. This figure is approximate based on the assumption that there are no big external liabilities. If a person has huge liabilities, (for example, a home loan) such person has to consider the payout of those liabilities along with adjustment of inflation before taking a life cover.
There are many types of life insurance covers available today. Insurance covers today come with multiple options for premium payments as well as cover payout options. There are also many insurers that repay the entire premium at the end of the term like HDFC Life, Max Life, ICICI Prudential, etc. Payouts of the cover insured can be either lump-sum or spread over a few years. Lump-sum payouts are generally a preferred option as the proceeds can be further invested or locked in secured investment options like fixed deposits.
Also Read: Do women need term insurance?
Health Insurance or medical insurance is another important insurance cover that is quite essential for a person to have. Health insurance is a cover that can be bought by any individual to secure themselves against any sudden medical expenses or illnesses. In many situations, this cover is considered to be far more important than even life insurance. The chances of one person or more in a family having a serious medical condition in today’s world is far more than a family losing their sole breadwinner. The medical expenses for any kind of serious illness or medical emergency can be sky high and a single day’s hospitalization can run into thousands hence, having health insurance is absolutely essential.
Health insurance plans are no longer standard plans. They have multiple options and variants based on the needs of the person insured. However, it is best to avoid innovative or complex plans and stick to basic plans for better understanding and cover. A simple indemnity plan that provides cashless hospitalization or reimbursement of hospitalization expenses and covers a majority of serious illnesses like cancer, heart-related issues, liver diseases, transplant, etc. is considered to be a good plan. These illnesses are very costly and the treatments for the same can run for years which has the potential to completely wash away a person’s life savings. A cover including hospitalization will ensure that not just the treatment cost of the illness but the entire expense of hospitalization is adjusted providing complete peace of mind to the insured.
Most people have a corporate health plan when they are employed with an organization which is known as a group plan. However, a person needs to have a health cover outside the organization so they will not be left uninsured when they leave their employment or while they are in transition between jobs. A health cover of the organization usually covers the spouse and children of the insured or the dependent parents. Such a plan is called a floater plan.
The cost of floater plans i.e. the premium amount is usually linked to the oldest member of the plan. Hence, if the plan is being taken by a person to include their dependent parents, it is advisable to have a separate plan for them as the premium costs can then be separated and charged more efficiently.
Like life insurance, it is advisable to get health insurance also at the earliest i.e. in young age. This is due to the fact that the probability of the health being better is high in the young age as compared to that in older age. It will result in lower premiums for a higher value of covers.
Accident/ Disability Insurance
Accident insurance is the third important insurance that a person needs to have for themselves. This is especially important in the case of a person who is the sole breadwinner of the family. It is a fact that Indian roads are not really safe and often lead to accidents which may result in the death or disability of a person. A person may not die in the accident but disability may stop them from being able to provide for their family. This is where accident insurance comes into play.
Accident insurance will insure the person against any accident and provides cover against accidental death or disability of the insured. This policy will provide a payout to the nominee of the insured in the event of their death. In the event of an accident leading to disability, the cover will be provided to such an insured person. Many covers also have the option to provide monthly income for a specific period of time (maximum two years) if such a person is not able to resume work due to such disability.
Accident covers can also be bought at less premium payment if bought early on. While buying a cover, the person has to consider their monthly income and any major liabilities. It is advisable to have a cover for at least 10 times their annual income or an amount that is sufficient to cover their expenses in the event the person cannot resume their work due to disability.
After considering the above insurance covers related to a person, the next important insurance cover is for the biggest and the costliest asset owned by a person. Today even mobile phones come with basic insurance covers but when it comes to a house, the majority of people are not even aware of an insurance cover available for their homes.
Home insurance is the cover that can be bought to insure the house of a person against any natural disaster or man-made disasters like fire, theft, terrorism, etc. The cost of insurance is usually determined on a per square feet basis. The general rule of thumb while calculating the insurance cost of the house is the more extravagant the house and the high-risk location of the house (for example in an earthquake-prone zone), the higher the cost of insurance or premium.
House insurance provides cover for the structure of the house and the contents of the house. In many cases, the jewellery is also covered against all risks. The cost of getting house insurance is actually quite low and can cost mere hundreds or thousands for a basic cover for the structure and the contents of the house.
However, there are many points of consideration while buying house insurance. Some of these are highlighted below,
- Insurance cover cannot be bought on a piecemeal basis. The entire structure of the building has to be insured and not a single section of the house.
- The insurers do not pay the full value of the claim as the initial 5% or Rs. 10,000 of any claim is deducted by the insurer.
- Most standard home insurance policies provide jewellery cover only up to Rs. 10,000 and cash is never covered under the policy. To get a better cover for jewelry it is advisable to get a separate cover for the value as required by the insured.
- The fine print of the cover has to be thoroughly reviewed for protection against theft as most policies do not provide cover against theft if the house was vacant for more than 30 days.
Car insurance or vehicle insurance is another important asset cover that is required by any person. In India, having motor insurance or at least a third party liability cover is mandatory under the Motor Vehicles Act, 1988 and a person can be fined for not having such insurance. Basic car insurance provides for the medical expenses of the driver and the passenger in the event of an accident. There is currently no definitive cap on the cover provided by the insurers and a person can get cover against financial loss as well as damages caused to others due to the insured person’s car.
There are many types of car insurance available in the market. A few basic variants of the same are mentioned below,
Personal protection against injury
This is a basic cover against injury and provides for the medical expenses of the driver and the passenger.
This type of cover provides for the damages to the vehicle irrespective of the person at fault
Vehicle theft insurance
This type of cover provides protection against theft of the vehicle. It is essential in the case of high-end vehicles.
This cover provides protection against the financial losses as well as covers for any liabilities for injuries or damages caused to others due to the vehicle of the insured.
Many insurance covers apart from life insurance are still treated as extravagance when they should be considered as a necessity in today’s world. Who would have thought a simple virus would completely disrupt and destroy the lives of millions! Insurance is therefore of utmost importance to protect you and your family against such unforeseen circumstances.
A person should thoroughly research the various insurance products available for each type of insurance required and even talk to experts for the same before finalizing a cover that is best suited to their needs. It is always better to start early in life with insurance covers to avoid paying high premiums and to get a better cover that can truly compensate for the loss to the maximum extent.