Insurance first

Updated on: September 30, 2020 ; Investments

Insurance – Why?

Many us would have had this question on insurance, and many of us would have chosen to ignore it or left it to be answered later. But this is one of the most crucial questions that needs to answered now, if you have not done already.

We all wish for a secured, healthy and prosperous life for ourselves and our loved ones. We thrive to achieve it by working hard to earn, save and invest. That is what we have been talking about in the other articles and will cotinue to do so. But in this article, we will focus on another crucial aspect that comes even before the act of investing. This aspect is often underplayed, ignored or delayed for various reasons. That is the protection cover for health and life. In short – Insurance.

It is very important to cover for the risks and the uncertainities that life might throw your way. And when it comes to your health and life, nothing takes precedence. However healthy or careful you might be, unfortunate events can strike anyone at any point of time without any warning.

Many, if not most of us think that nothing can go wrong with us. That is human nature. But that is also wishful thinking. In fact most of us are correct about it at that particular moment. Great! but what about the next moment, or the next day, or the next year, or the next 20 years. Not so sure, right?

People don’t realise that they are more vulnerable that they think themselves to be, until they are hit by the stoke of bad luck. Thousands of people fall sick or have fatal accidents everyday, every minute. Do you think, most of them knew what is going to hapen with them on that day? I bet not, otherwise wouldn’t they have done something to avoid it.

Of course, there are certain cases where some incidents could be anticipated because of medical history in family, nature of work, kind of activity etc.. But even in such cases no one can predict the outcome and its timing with any certainity.

When it comes to medical emergencies, hospitalization charges can be very expensive. In severe cases that one incident in your life has the potential to wipe out all your savings. Even worse, it could land your family under a heavy burden of debt.

In the event of untimely death.. let’s face this hard reality, death doesn’t come with any notice at times. So in case of such an unfortunate and unforeseen event, what would happen to your family, if they are dependant on your income. No one can fill the void left by you, but you can at least plan to secure their financial needs to some extent.

So, it is of utmost importance that you have enough to cover for any medical or life emergencies. This is possible if you have accumulated enough wealth. But accumulation of wealth is a very long process. So in case you are in the path of wealth accumulation and yet to reach your goal, the way to cover for these is through health and life insurance.

Let’s cover some basics on health and life insurance in the following sections. Will cover the Dos first and then touch upon the Don’ts.

Health insurance

Photo by Markus Frieauff on Unsplash

We are not going to talk about which insurance plan you should go for or what is the cover you should take. You are the best judge on deciding those factors. What we will do is this – Help you in making a well informed decision. We will briefly touch upon certain key aspects that you need to take care of while opting for a health insurance.

• Know the charges: Understand all the charges before buying a policy. What are the terms and conditions. More importantly, understand what medical conditions are not covered under your insurance plan. Browse through some reviews to see what other customers have to say about their claim experience.
• Set a suitable cover: You can choose between taking individual policies for each family member and taking a single family plan that covers the whole family. The premium charges and the cover will vary accordingly. Another crucial aspect to check is till what age will the insurance cover your medical expenses. Medical expenses are likely to only increase in future. Also the premiums increase with age. So take a cover large enough that you can afford and would be able to cover your anticipated medical expenses.
• Start early: As discussed above, premiums increase with your age. So starting early will be less costly for you and also provide you the medical cover. You also get the no-claim bonuses in the subsequent years.
• Declare everything: Make sure that you declare all your medical history, your lifestyle habits with full honesty when you are going for a health insurance policy. Any undisclosed information can cause issues during the time of claim processing.
• Check the network of hospitals: Check the list of hospitals and cities your insurance covers. Make sure that the best hospitals around you are covered in the list so that you can avail hassle-free, cashless facility.
• Keep the policy details handy: You don’t want to be scrambling to get the policy details during the time of an emergency. So please keep the policy details, especially the provider name and the insurance policy number handy. Also have is ready with all your family members. The best and the easiest way is to store it as a phone number or a note in your mobile phones, as well as your family members’ mobile phones.
• Explore riders: You can opt to add additional benefits to your base plan. These are called riders. Please go through them and choose the riders you feel suit you better.
• Pay premiums on time: Don’t need to elaborate on this one. Avoid waiting till the last date.

Life insurance

Photo by Natalya Zaritskaya on Unsplash

Now this one is to ensure that the financial needs of your family and your dependents are covered in your eternal absence. This is one of the products you buy hoping that you never have to use it. You need to be mindful of the following points while going for a life insurance.

• Term insurance: Always go a term life insurance. These are very affordable. Please note that there is no return in case you survive the whole tenure of the insurance. But you pay a very small price for it that should hardly matter. Expect no returns from it in your lifetime.
• Choose the right tenure: Choosing the right tenure is also very critical. The policy should at least cover, till the time you accumulate enough wealth for your loved ones, or you don’t have any financial dependants. Please note that, you cannot alter the term length of your policy after you have started the policy. I suggest that you opt for a slightly longer tenure that estimated by you. This will give you some additional cushion years.
• Life cover: Another obvious element is the amount of life cover. This is the amount your nominee(s) will receive in the event of your unfortunate departure. Please be wary of the rising costs and increasing needs of your family in the future while deciding this amount. There are policies that have a provision for increasing your cover amount on an annual basis.
• Do your research: There are many reputed insurance providers that provide similar insurance products. Do you research and comparison before finalizing any one. Insurance is a very tightly regulated industry, so chances of frauds and misleading are very less. Still I urge you to read all the details very carefully, terms and conditions, check the past record of the insurer, compare quotes from competing providers and study customer reviews. Also compare the claim settlement rates and process.
• Start early: Mortality charges form the major component of your insurance premiums and they rise pretty sharply with your age. So it is advisable to start as early as possible. Even if you don’t have dependents right now, it is advisable to take term life insurance as soon as possible. Because, most likely you will have some dependents is near or distant future. Delay in starting a policy will only drive up the premium costs. The cumulative cost of increased premium will be higher than the additional premiums you would have paid, if you had started early.
• Payment schedule: There are several payment options and schedules available which you can choose from, based on your comfort. You can choose to pay your premiums quarterly, semi-annually, annually etc. There is another interesting aspect. You can choose to pay till end of the term or till a certain number of years for the same cover. The premium would vary accordingly. This flexibilty is provided so that you can pay only till you retire, and still continue to enjoy the life cover after that. If you feel that after retirement you would not want to carry on the burden of premium payments, you can choose to pay till a certain date, from the options provided by the insurer. Otherwise you can opt to pay till the end of the tenure. The premium amounts are fixed at the start of the policy. So if you start early, by the time you reach your retirement age the premium amount would not be a very big sum of money (thanks to inflation).

Things to avoid

So far we have discussed all the things you need to know or consider before buying an insurance policy. Now we will have a look at a few things or a few common mistakes that should be avoided. The amount of options and easy information available can confuse anyone very easily. So please be careful on the following points:

• Don’t mix insurance with investment: There are many products that provide a mixture of insurance and investments. They promise some market linked returns after a few years even if the insurance in never claimed and it reaches its maturity. These products charge higher premiums and provide lower cover when compared to a pure insurance product. They give sub-optimal returns when compared to similar investment products available in the market. The charges can be confusing at times. In addition to that they usually have a lock-in period which renders your investments illiquid for that time period. I strongly suggest you to keep it simple, and separate you investments from insurance.
• Don’t ever miss payments: I have already covered this earlier. Just to reiterate, missing payments can lead to suspension of your insurance benefits for sometime which might prove to very costly at times, because you never know when the stroke of bad luck will hit you.
• Don’t over-drive with your riders: The riders have added benefits but they come with an added cost. Please choose your riders carefully. Only go for the ones that you feel are very crucial and beneficial for you. Some people tend to take up lots of “unnecessary” riders and end up paying huge premiums. Avoid such scenarios.
• Don’t overload: Many people also end up taking multiple insurance because of various reasons that I will refrain from going into. Make sure that if you have multiple insurance there are no overlap of benefits. For example, if you can settle your medical expenses against only one policy that covers your entire expenses, taking another health insurance makes no sense until is covers something that the current one doesn’t cover.
• Don’t fall for ‘amazing’ offers: More often than not some insurance agent will come up with a ‘once in a lifetime offer’ or ‘limited offer’. Don’t hurry up your insurance decision because of such offers. Make a decision only after you have done your thorough analysis. There will always be some other ‘amazing’ offer waiting for new customers. Don’t run after offers, they will come to you.

There is a ‘free look period’ of 10 days or more for all the new insurance plans. So in case you feel that you took an insurance that doesn’t suit you, you have the option to cancel it within this period. And the best part is – there are no penalties or surrender charges if you choose to cancel a policy within the ‘free look period’.

Conclusion:

Do take care of unforseen, unexpected expenses or financial burdens that might come upon you or your family. Get your and your loved ones’ health and life covered first, even before you think of investing. Guard your home first before venturing out.

Stay Healthy and Safe!!!