Insurance policies you must have

If you have a family or dependants then term insurance is a must for you.

March 13, 2014 3:15 IST | India Infoline News Service

Woody Allen put our hesitance towards buying insurance beautifully when he quoted, “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?”

As an Indian, we typically prepare for any contingency by praying for protection. While we need the gods to be kind, we also need a more realistic form of protection. That’s where insurance steps in. Insurance protects us and our loved ones by providing financial support when an unforeseen event hits us.

Among the various myths that exist today about insurance, one common misconception is that insurance is a costly affair. This is not true. We list down five insurance covers you need for an ideal protection portfolio that won’t burn a hole in your pocket.

Life Insurance
If you have a family or dependants then term insurance is a must for you. Term life insurance is a risk cover on the life of an individual. Buy it and be assured that your family will be financially protected in case something happens to you. Figure out how much term insurance you need through factors like how much you plan to earn every year and how long you plan to work. As a thumb rule, you should buy a life cover equivalent to your expected income for five years, plus any outstanding loans. The best part about term insurance is that it comes really cheap. For instance, a 25-year-old (male, non-smoker) can buy a Rs 1 crore cover for an annual premium of nearly Rs 6,000. The term policies sold online are cheaper than their offline counterparts.
Personal accident insurance
The risk of an accident and the disability that may arise from it can be huge. At this point, having a Personal Accident insurance cover helps. An accident and disability cover helps recover from the loss of income generating capacity caused by an accident. It also reimburses the income loss caused due to absence from work. You can get a personal accident cover for over Rs. 10 lakhs by paying only Rs. 1500.

Health Insurance
Given the rising healthcare costs, a health insurance policy is indispensable for everyone. For an individual, the first step is to have a comprehensive indemnity-based cover in place. This is true even if you have just started earning and do not have any dependants because you will have to shell out a much higher premium if you buy it when you are older. Besides, you should not depend on the cover provided by your employer since a change of job could leave you vulnerable.  In health insurance, an interesting option is the fixed benefit plan. If you take this plan, you will be handed a predefined amount at the time of claim. This helps cover expenses on food and travel during recuperation which might be difficult otherwise due to loss of an income.

Auto insurance
Auto insurance covers you against two kinds of financial losses: damage to your own vehicle and damage by a third party. In our country, third party auto insurance is compulsory. This is paid across if another vehicle is damaged or person is injured by you during an accident. It is also mandatory to insure new vehicles before they hit the road. The markets are filled with great comprehensive car insurance policies that are quite competitive in pricing. Make sure you invest in add-on features like depreciation cover and engine protector that that will save you on expenses in case your car hits the workshop for repairs. Also, always check if you have cashless facility on auto insurance. Cashless options will save you from the hassle of tedious reimbursement procedures. Make sure to renew your car insurance yearly to prevent break-in insurance and utilize the no-claim bonus.

Home insurance
Home insurance, also commonly called homeowner's insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory. This is not limited to only if you own a house, you can also insure the personal assets in your rented accommodation. You can get a cover close to 20 lakhs for Rs. 1,200.

Another misconception people have is regarding the amount of home insurance required. If you are buying a home worth 1 crore, you don’t need a sum assured of Rs. 1 crore. The 1 crore cost includes the cost of the land which is an indestructible asset. You need an insurance amount that is equal to the reconstruction cost of the house.

Also, know this, never be under-insured when it comes to home insurance. This is because, in case of under insured claims, the company does not pay the complete sum assured, but an amount that is in proportion to actual cost of re-construction. So if you have a home insurance of 25 lakhs, but your cost for reconstruction is 50 lakhs, you will be paid only 12.5 lakhs.

The author is Yashish Dahiya, CEO & co-founder, Policybazaar.com

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