How to approach Insurance?

Submitted by j.nair on Mon, 15/04/2013 - 11:20

We all buy insurance and by now we’ve developed skill sets to avoid insurance agents or an executive of the bank selling insurance. The reason of buying insurance were varied; before 2000 it was LIC’s endowments and money backs only to save income tax where as motor insurance in general insurance side just because the law required it. Post 2000 private sector companies in life insurance sector brought in the new concept of wealth management i.e. insurance as an investment.

You would also find “Insurance is subject matter of solicitation” written in all documents, brouchers related to insurance crying out loud that in India the law doesn’t permit insurance to be sold. Insurance is not to save income tax neither it is the best instrument of investments it is just insurance.

Now, how should one approach insurance? We should approach insurance only from the RISK angle.

Insurance is transfer of your risk to the insurance company against a premium. Where insurance company agrees to pay if the insured event occurs. We’ve five key risk in our lifecycle. They are

Your income at risk – This is our good old Life Insurance plans. It is interesting to note it doesn’t cover your death but only the loss of income which your family face due to your untimely death. Some plans you should consider.
1. Term plans – Providing life protection for a specified period of time. The best form of insurance money can buy; it pays sum assured when the insured dies and if he doesn’t then the premiums are not usually paid back. There are though lot of other variation of this product.
2. Children's plans - Insurance taken to secure your child's life and needs in your absence. Once you have covered your income loss with a term plan you may want to get more focussed in your risk management and insure your child’s future.
3. Investment plans – In India Insurance is more sold as investment instruments but insurance being not very liquid and may not be good investment if not invested for less than 10 years.

Your Properties at risk – Once we’ve protected your family’s income in case of your untimely death; we should protect all our hard earned assets.
1. Householders risk insurance - Insuring your house, and household items from the various risks like fire, flood, earth-quake and burglary.
2. Motor Insurance - protecting your vehicle and safeguarding you from third party liabilities while using it on roads.
3. Jewellery Insurance - safeguarding diamond and gold jewellery that are precious to you from fire, burglary etc while at home, at the bank locker or while worn on body.
4. Pet Insurance - to replace pets in case of death due to illness or accident.
5. Portable equipment insurance - protecting your portable items like i-pads, laptops and cell phones etc.

Your health at Risk – Good news is that the medical science has progressed and life expectancy has increased but medical bills can set you back, sometimes by a decade of savings. It makes lot of sense to plug that risk.
1. Medi-claim insurance – Regular medical insurance to take care of hospitalisation costs.
2. Critical illness insurance – Offering financial protection when you are hit by critical dreaded diseases like cancer, stroke etc.
3. Personal Accident insurance – Meeting your medical costs and providing for compensation as a result of any accident.

Liability Risk – India is slowly becoming highly litigative society. People sue others for damages caused. A class of lawyer are emerging who wouldn’t charge any fees but would take a portion of settlement amount.
1. Public Liability Insurance- protecting yourself from a third party claiming laibility from you.
2. Employee compensation – protecting yourself from help hired by you claiming damages due to bodily injuries or death in your property.
3. Family event insurance- Covering the liability, like food poisoning, loss due cancelation of the event due to accident, hartal etc, arising out of conducting a family function like marriage etc.

Risk of living longer - With advancement in medical science the life expectancy has increased. We should plan to life another 25-30 years of life after retirement. Start as early as possiple.
1. Differed Annuity (Pension Plans) - Building a corpus fund during your working years to meet your pension needs.
2. Immediate annuity - Investing the pension corpus fund to draw monthly pensions.

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Five key risk in human life