Insurance is an extremely important financial component that protects against unpredicted events happening in the future. It protects your family, estate, and health from sudden mishaps. The article attempts to explain the insurance as a system, the different types available, its features, common misconceptions surrounding insurance, and factors to consider when selecting an insurance policy.
1. What is Insurance?
Insurance is a form of protection utilized for future uncertainties. For example, an individual may be interested in protecting their car against theft, or in the event of an accident, the individual may wish to protect themselves from mediation expenses.
The protection policy is a contract that involves two players: the insurer and the insured. While the insured can either be an individual or a company purchasing an insurance policy, the insurance company provides policies that cover multiple areas.
“Sum Assured”: The sum assured is when Mr. A decides to purchase a health insurance policy of a value of Rs. 10 Lakh, this amount is the sum assured. The insurance company will provide coverage of Rs. 10 Lakh.
2. Types of Insurance
There are different types of insurance based on different needs of people. The most common ones are discussed below.
i. Life Insurance
Life insurance is a policy sold by an insurance company which pays a benefit to the insured person’s family upon their death.
The two broad categories of Life insurance are explained as below:
- Traditional Life Insurance: This plan covers the life of the insured individual and at the end of the stipulated period, deposits a lump sum to the insured (or their dependents). Units are usually granted to the insurance policy in consideration of a standard interest payable of 6-7%.
- Term Insurance Plan: The insured party will pay their premiums during a set period of time and if they die within that timeframe, the family will be given the set amount of money. If they do not die during the timeframe, they will not receive any money.
ii. Health Insurance
Health issues insurance refers to cover medical expenditures during a problem concerning health, injury, or an emergency. It is also known as Medi-claim insurance. This is one of the most important forms of insurance as it helps alleviate the financial strain especially from serious conditions such as cancer or COVID-19.
iii. Travel Insurance
Insurance taken to cover against unforeseen losses during travel is called travel insurance. It could involve coverage for canceled trips, medical emergencies, lost bags, and travel delays. This insurance is commonly bought by regular travelers, especially people traveling overseas.
iv. Accidental Insurance
Accidental insurance covers death or injury caused by an accident as well as permanent disabilities. This type of insurance has gained significant prominence among workers employed in highly hazardous places like construction and manufacturing plants.
v. General Insurance
This category encompasses other forms of insurance policies like insurance on assets such as real estate, automobiles, etc. With general insurance, one is protected against liabilities and voids, ensuring coverage for all risks and aiding everyday concerns.
3. Common Insurance Myths
Though insurance is a crucial component of securing oneself financially, some people hold these common assumptions:
Insurance is a saving instrument:
A lot of individuals view insurance as an investment plan, which in reality it is not, as its main purpose is to serve as a financial shield.
No need for insurance:
There is a category of people who consider themselves self-reliable to cover risks and hence opt not to have insurance. While it is true that certain life events are within our control, insurance is there to provide a safety net to prevent the financial consequences of the unforeseen.
4. Factors to Consider When Choosing the Right Insurance Plan
This vague outline is often used when people are talking about what options exist for health insurance. Most of us can agree that selecting the best plan for you and your family is very important, so here are some pointers that might be helpful.
i. Investment Capacity
Your investment capacity plays a significant role in selecting an insurance plan. If you are looking for a lower premium, term insurance is an excellent choice. If you can afford higher premiums and want to save while being covered, traditional life insurance is more suitable.
ii. Number of Earning Members
When evaluating the income of your family, a term insurance plan will provide the most coverage if they only depend on your income. In contrast, if there is more than one working family member, then consider choosing a mix plan that integrates elements from both term and traditional life insurance policies.
iii. Health Insurance
At minimum, everyone should hold health insurance for themselves and their family. Such coverage ensures that if a member of your family suffers from a health condition, your savings are safeguarded against overwhelming medical costs.
5. How to Get Insurance Coverage?
As stated above, it is possible to procure policies by directly reaching out to multiple insurance agents or by researching the available options online. Do make it a point to read the policy’s terms and conditions prior to signing and paying for it.
Conclusion
From a financial planning perspective, insurance is critical. Be it for life, health, or property, one has to be conversant with the specifics of insurance and select the most appropriate one for comprehensive financial wellbeing. It is important to take note that life insurance, like any other type of insurance, is not just a financial backup plan but a way to protect yourself and your family from unforeseen events. Out of all forms of protection, consider the insurance types that best suit your financial state, family circumstances, and health.
