Insurance
offers peace of mind, security and a safety net. It allows for the unexpected
to happen, and for your family to be able to manage.
There are many types of insurance, and clients buy insurance for many different reasons. As a Financial Advisor I am committed to guiding you through the maze of information, options and decisions in regards to insurance and protecting your family.
Insurance is the equitable transfer of the risk
of a loss, from one entity to another in exchange for payment. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain
loss.
Let me first answer all those who say “ I don’t
require Insurance ”……,such people give various reasons to support and win this argument but in
practical terms they are or may be unknowingly losing a lot. Generally I ask following few
questions to such people-
1. Do
you use Helmet while driving a bike?
2. Do
you have a Locker for Valuables?
3. Do
you have Lock and Key to your house or car or bike?
4. Do
you Plan something?
5. Have
you ever sealed an envelope or a parcel?
6. Do
you put aside certain portion of income as cash? and some other portion parked
into savings?
7. Do
you have alarm or central locking system
installed in your car?
And if most or even one answer is YES, the person is at least
unknowingly using or applying Insurance theory. These are day to day activities
and some or the other way, knowingly or unknowingly we are using this concept.
Insurance
is important for many reasons and can be used to:
- Protect the income stream of your family (maintaining
your standard of living)
- Pay off debts and provide money at the death of the
insured
- Provide a source of retirement income
- Fund a child's education
- Create or sustain a family's wealth
- Cover funeral expenses
- Cover estate taxes - providing funds necessary to
prevent the liquidation of assets
- Cover the cost of living expenses and time off work due
to sickness or injury
- Ensure resources aren't drained in the event of an
unexpected illness or injury
- To protect entity from losses to Assets like car, home
etc.
The bottom line is it provides peace of mind for you and your family.
TYPES OF INSURANCE-
Auto Insurance
Auto insurance
protects the policyholder against financial loss in the event of an incident
involving a vehicle they own, such as in a traffic collision.
Coverage
typically includes:
- Property
coverage, for damage to or theft of the car
- Liability
coverage, for the legal responsibility to others for bodily injury or
property damage
- Medical
coverage, for the cost of treating injuries, rehabilitation and sometimes
lost wages and funeral expenses
Life Insurance
Life insurance provides a monetary benefit to a
decedent's family or other designated beneficiary, and may specifically provide
for income to an insured person's family, burial, funeral and other final
expenses. Life insurance policies often allow the option of having the proceeds
paid to the beneficiary either in a lump sum cash payment or an annuity.
Certain life
insurance contracts accumulate cash values, which may be taken by the insured
if the policy is surrendered or which may be borrowed against. Some policies,
such as annuities and endowment policies, are financial instruments to
accumulate or liquidate wealth when it is needed.
Property or home insurance
Leading financial institutes and insurance companies
offer home insurance schemes under which the structure and/or contents of the
home are protected as per the preference of the owner. The home insurance
policy covers damage done by natural calamities as well as humans. To
elaborate, the policy insures the damages done from fire, burglary (covers
theft of jewellery, silver articles and precious stones), riots, terrorism
(Optional cover), earthquakes, flood, aircraft damage, hurricane, bursting of
pipes, damage done by road vehicles, lightning, landslides and explosion of
hazardous material. The sum insured under the home insurance policy is for
structure of the home; however, it is calculated according to the
reconstruction value of the home i.e. the cost incurred after the damage and
not according to the market value of the home. The reconstruction value is
based on the material and labour used in the home. Similarly, while setting the
value of the contents of the home, the future depreciation value is calculated.
Health Insurance or as we know as Mediclaim
Health insurance provides risk coverage against expenditure
caused by any unforeseen medical emergencies. In current times of high medical
inflation rates, failing to hold adequate amount of health insurance cover can
prove to be a major personal finance disaster. This could lead to either poor
health care because of non-affordability or spiral an individual into financial
distress due to high medical bills.
There are two common mistakes when it comes to buying life insurance and health insurance.
There are two common mistakes when it comes to buying life insurance and health insurance.
- People don't act at the right time, and
- When they realize that they have made a mistake they try to over-compensate by buying too much insurance.
There is a popular saying about health insurance: "Buy health insurance when you don't want it, because you may not get it when you want it."
Currently, majority of the salaried professionals are provided health insurance cover by their organizations. Majority of the employees are increasingly dependent on such health insurance cover to counter their health contingencies. However, they often fail to assess their health insurance requirements and don't realize the benefits. It is advised that professionals opt for personal health insurance cover as well.
Casuality or Accident Insurance
This covers
expenses or probable income loss incurred due to Accidents.
Critical Insurance
This is an
extension of Medical insurance, which covers expenses due to Defined Critical
illnesses and being insured under this, has an added advantage along with
general medical insurance
Liability Insurance
Business,
Employment insurance, Limited liability insurance etc are loss avoiding covers.
Travel and Baggage Insurance
This is designed for people who Travel for longer period or are travelling on regular basis, a term called frequent fliers. This may or may not cover Baggage insurance as per choice.
Travel and Baggage Insurance
This is designed for people who Travel for longer period or are travelling on regular basis, a term called frequent fliers. This may or may not cover Baggage insurance as per choice.
Above are
certain commonly sold or taken insurances, others also exists, but will talk
separately. I am even cutting short on above list details, and will write
separately.
The
contract of Insurance is valid for payment of the insured amount during:
- The
date of maturity, or
- Specified
dates at periodic intervals, or
- Unfortunate event, if it occurs earlier.
After knowing Basics of Insurance, which insurance company to go through, is another question ? "Which and why of Insurance Company", I may handle sometime later, but below are number if companies offering there products in each category-
LIFE INSURANCE- 24 companies (as per IRDA site updated as on 2.9.13)
NON-LIFE / GENERAL INSURANCE - 27 companies (as per IRDA site updated as on 11.2.13)
I know, next obvious question is how to know which co.is good or bad and what should be the filters to watch out for? I will handle this in simple manner later.; here I have to answer basic of Insurance.
Protection
Easy Regular Savings
Liquidity (in case of Life Insurance)
Tax Saving
Small payments, big losses or income covered
Actually and Practically thinking, this is
only investment in which outgo is the least as compared to guarantee of inflow,
especially in case of dire circumstances. Take any example and you will know.
Example: Life Insurance-
If a normal healthy person takes endowment policy
which covers insurance of Rs.!0 Lacs, his or her outflow for next 20 yrs would be
averagely around Rs.40000 p.a., now if in third year, normal death occurs to
the insured, by just paying Rs.40000 p.a. a sum of Rs.10 Lacs is given to
his/her family. If I put for a minute emotions apart, and look only from
economics point, tell me which other investment gives such guarantee, and if
you take a Term Insurance for same 10 lacs life insurance outflow would be much
lesser.
Example: House and contents insurance-
As a part of Financial Planning, Risk
Planning is also done and I also cover asset insurance. Recently I have given a
quotation of around Rs.11000 p.a. for around Rs.1 cr. valuation of House and
contents. This is merely 0.11% of the sum assured. Where else would I get such
returns or for that matter guarantee.
Basic idea is "PEACE OF MIND", while one is
actively involved in day to day activities, which helps one concentrate more and excel in life.
All said and done, still if you ask me, one should ask self and get the answer of "WHY am I thinking of buying Insurance", that's your correct reason to buy insurance.....Also refer to my previous article on "Shortest Secret to Buying Insurance".
All said and done, still if you ask me, one should ask self and get the answer of "WHY am I thinking of buying Insurance", that's your correct reason to buy insurance.....Also refer to my previous article on "Shortest Secret to Buying Insurance".
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