Life is unpredictable, but still, people plan their future, have goals and save money to fulfill their goals. Similarly, getting prepared for any unforeseen event is equally important. Protection against any possible eventuality is called Insurance.
It is a rightful legal contract between an insurer and the insured, in which the insurer promises to pay for any losses or liabilities of the insured caused by an uncertain event in exchange for the premiums paid by the insurer.
Importance of Insurance
Without insurance, any eventuality will cost you all your savings, but insurance will cover all the unexpected financial losses due to a misfortune event. Having adequate insurance reduces your financial risk by transferring it to an insurance company. The risks can be associated with life, property, health or any other asset of an individual, which may result in financial losses. Here is a list of popular terms and life Insurance FAQs that will help you understand why it is essential to be insured.
1. What are the different types of Insurance?
Insurance can be broadly classified into two categories: Life Insurance and General Insurance.
Life Insurance -
A life insurance policy covers the life of the insured and financially protects his family after his death. When the sole earning member of a family passes away, leaving his family without any financial means, a life insurance policy provides financial assistance to the family in the form of a sum assured that is paid to the beneficiary nominated by the policyholder. Such a policy comes in many variants: Term plan, Endowment plan, ULIPs, Whole life insurance, Money back plan and Annuity plans.
General Insurance -
General insurance is non-life insurance that covers health, motor, property and travel. Unlike life insurance, these policies pay according to the loss incurred due to an uncertain event.
Here are the most common types of general insurance policies in India.
Health Insurance -
Health insurance covers the medical expenses in case of hospitalisation of the policyholder. Again, there are different types of health insurance according to the coverage they offer. E.g. Individual health insurance, family health insurance, critical illness cover, senior citizen insurance, group health insurance, etc.
Motor Insurance -
Motor insurance covers accidents involving a car or a bike. A policyholder can avail of motor insurance for his car, bike or commercial vehicle. There are three types of motor insurance third-party liability, which is legally compulsory for all vehicles, comprehensive insurance and own damage cover.
Home Insurance -
Property or home insurance covers damages to a property and its contents due to fire, theft, storms etc. A property can be a home or a commercial property.
Travel Insurance -
Travel insurance offers financial aid to a traveller during a trip covering flight delays, baggage loss, travel document loss, etc. It is a short-term cover compared to other types of insurance. A policyholder can avail of domestic as well as international travel insurance.
2. How are term insurance and life insurance different from each other?
Term insurance is pure life insurance that gives death benefits to the nominee only if the insured dies within the policy term. The insured does not get any benefit on maturity, and therefore, term plans are inexpensive. Life insurance, on the other hand, provides both a death benefit and a maturity benefit to the insured. It has higher premiums and serves as an investment also.
3. What to consider before buying a term insurance plan?
Term insurance is an essential requirement for future financial security. Here are some important things to consider before buying term insurance:
- Choose adequate cover which is sufficient to cover your family’s living expenses, liabilities and future goals for at least 30 years, considering inflation rates.
- Share all the information correctly, and do not hide anything like your health issues or if you have a drinking or smoking habit. Hiding such information may lead to your insurer rejecting the claim considering it a breach of contract, in case you die because of any undisclosed reason.
- Provide a nominee's name in the proposal form. It can be your spouse or your children to whom the benefit of term insurance will be passed on.
- Include riders for additional benefits in your policy. These additional benefits can be accidental death benefit, critical illness rider, income benefit, and premium waiver benefit.
4. What to consider before buying life insurance?
In order to make the right choice, you need to consider many aspects before buying a life insurance policy. These are:
- First, consider your family’s coverage needs to meet all the future needs of your family.
- Choose the right policy tenure. Ideally, it should be your retirement age minus your current age. But you can choose a longer tenure also depending on your needs and goals.
- Do proper research, compare plans and choose the right insurer. Consider factors like, benefits offered, claim settlement ratio, claim settlement process, policy renewal, customer service etc.
- Choose a premium that you can continue paying for a long duration. Consider your financial status and affordability before choosing a premium amount.
Before buying insurance, make a list of the most important reasons you need coverage. Once you are sure of your requirement, it is easy to choose a plan. Do your research and find a company that provides a plan to meet your requirements.