Two recent incidents have made me re-think and re-emphasis the need of insurance. I will narrate these incidents below, but insurance products are still sold than bought. Numbers have improved but still lot remains to be done. I still meet people on daily basis, who are financial savvy and still do not have basic Term Plan or Mediclaim. The importance of insurance is ignored. The chalta hai… attitude can cost huge in this active world. Insurance importance need to be appreciated.
The insurance density (ratio of total insurance premiums to the whole population) also remains very low at $73 as compared to the world average of $650. In short, India is grossly uninsured. Importance of Insurance takes a back seat even after 72 years of independence.
In fact, not only un-insurance but under-insurance is also a key issue. Many ignore the importance of insurance.
It is a subject that is low on the priority list even for financially literate investors. In India insurance penetration (ratio of premium underwritten in a given year to the gross domestic product or GDP) in India is only 3.7 percent, which is far below the global average of 6.1 percent, according to the multinational reinsurance company Swiss Re Institute’s sigma report, 2018.
The majority of people who have taken a cover are under-insured, meaning not having an adequate coverage.
The 2 most recent incidents – Importance of Insurance
… which got me re-access my own covers and write this piece.
Who thought it would rain like hell!
Last month we all saw the heroic efforts of Armed forces in Kerala where they worked day and night to save the flood surrounded people. Your live is saved but your house, your office your belongings, your car etc. is all water ruined and now shall be of no use.
To get back to life, you need to buy and repair many things and this means you need some good amount of money – now.
In another incident, me and 2 of my finds with their family went for a little weekend gateway to Siriska Forest (it’s in Alwar Rajasthan). It was hilly area to drive. We 3 friends were in one car and in second we had our families. Suddenly my friend who was driving the car, dozed off and car went left.
The car went over a huge rock and front portion jumped over the rock and we got stuck. The rock saved our lives as if it would have not been there we would have been rolling inside the 250 ft. deep valley.
But the front portion of the car got badly damaged. Luckily my friend had insurance (that too with depreciation waiver – here the plastics like bumpers etc. are also covered). Within 2 days he got the damaged part replaced, dented & painted. Mental agony- Full but expenses – -covered.
Importance of Insurance – One of the Best Way of Managing Risks
We often cannot prevent events such as the death of a loved one, an accident, or extreme weather conditions from damaging our homes and businesses (the latest example being of historic Kerala floods & Mumbai – every year floods).
These are uncertainties of life, for which, we need to take steps to mitigate the risks. In fact, given the rise of lifestyle diseases, double-digit medical inflation, fading employee benefits, etc. getting an adequate amount of insurance today is more important than ever.
When you buy insurance, you transfer the cost of a potential loss to the insurance company in exchange for a fee, known as the premium.
Basis Checks in Insurance
There are just 2 needs or importance of insurance:
- Asset Protection
- Income Protection
Asset protection means saving what you already have. Like your car or house from burglary. If an asset is lost you lose money in replacing or repairing it. And this money will be drain on your financials and will impact other goals.
Income Protection means, saving yourself from earning. Death, medical emergencies can prevent you or the bread winner to earn further or have an imposed break. You know of earning stops, the goals for life (like retirement, kids’ education etc.) will suffer or get delayed. Can you let that happen?
Depending upon your requirements, different types of insurance products can be taken – life insurance for safeguarding your loved ones, health insurance to protect yourself and your family in case of medical emergencies, home and car insurance to protect your assets, and term insurance plans for goals like retirement, children’s marriage and education, etc.
What if you have insurance?
Once bought, the insurance covers also need to be regularly reviewed and upgraded, especially at changing life stages. Also, remember to keep all your insurance plans in a secure place and inform your family members/ nominees about the same.
Insurance & Life Planning
Most insurance products have added tax saving benefits. But never buy insurance for Tax Benefit. Buy if your Financial Plan needs it.
Always keep fundamentals of planning finances strong. Make savings as you earn, invest in good return-generating instruments, provide protection to self, family and your assets through life and general insurance, and achieve all your goals in a systematic manner. This should be followed rigorously.
Our message remains the same – ‘keep investing and stay invested for your life goals’.
Any financial plan without an adequate insurance coverage is incomplete.
What to have in your Insurance portfolio?
Different types of insurance products – across life and general categories – help protect you and your loved ones in difficult times such as illness, accidents, disability, death, and other risks.
Importance of insurance should be your top priority. Even before investments, especially the life and the health insurance.
Its role as a risk-management tool cannot be overemphasized. Usually, one realizes the importance of insurance after the event has occurred. It is, however, crucial that you act early on to avoid unnecessary hardships later.
There are many forms of insurance and one size does not fit all. You need to take into consideration your age, financial situation, life goals, health conditions, etc. before deciding upon the right cover.
For life insurance, the pure term plan works best. It is fairly inexpensive and the simplest form of insurance that meets the core objective of protection.
For health insurance, the family floater plans are most suitable for the majority.
Motor or vehicle insurance is mandatory by law and should never be ignored.
Next, there are certain insurance plans that help you reach your financial goals such as child and retirement plans, and some that help you create wealth in the long run, such as unit-linked
Insurance plans (ULIPs). In current form these are expensive and a mix of term insurance with SIP is the best combination. Hence ULIPs should be avoided.
You should also consider buying covers against disability travel, real estate and household contents.
The amount of cover can be ascertained with a help of an expert or your financial planner. Share your views and first of all think are you convinced on importance of insurance? Second, check … Are you adequately insured?
