Being a lucky and loose person, the harsh realities of life strike you when you start working. You need to think about saving money and decide which asset class to invest in to achieve your financial goals. You also begin to wonder how to protect yourself and your dependents from the uncertainties of life. Insurance planning is very important at this stage of life.
If you are a earner, your decision to take out life and health insurance will not be delayed. But the multi-million dollar question is where to get information about the benefits and suitability of many insurance products. There is a huge army of self-proclaimed advisors waiting to exploit you.
Let’s unravel the mystery of these insurance products.
Life insurance
Life insurance is a contract between a policyholder and a life insurance company that pays a guarantee at the time of death or maturity. The reason is that dependents can use their bills to handle the various costs of living a normal life. What is the appropriate life insurance that an individual must take to cover the financial losses faced by their dependents? As a rule of thumb, every individual must have life insurance equal to 15 times his annual income. How can I get this amount? If an individual’s annual income is 10 rupees, 1.5 chlore of life insurance (Sum Assured) is required. After his death, the family can keep the fixed deposit (FD) bill at the general interest rate of 6% and earn 90,000 rupees as interest.
Once you have decided on your life insurance coverage, the next question is about the type of insurance plan you should buy. An agent who may be your acquaintance or a relationship manager at a bank in your neighborhood promotes policies that can generate wealth while guaranteeing the benefits of death. The higher the premium, the higher his commission and the brighter his chances of participating in the Million Dollar Round Table (MDRT)!
You need to take out life insurance with death insurance only. These insurances are called term plans and are the cheapest in terms of premiums paid. For example, for a 25-year-old individual, the annual premium for a 1-chlore term life insurance with a 25-year holding period could be around 8,000 rupees per year.
All other policies are a waste of money. Limit.
Misselling is rampant in the industry and you need to protect yourself from these predators. They create horror in your mind and especially hang tax incentives. If you are in a new tax system, tax incentives lose all brilliance. Also, the physical and financial assets you would have created take care of your dependents, so instead of taking a lifetime cover or a period of up to 80 years, for a limited period of time, eg 25 to 30 years. Go. When an individual is over 50, the need for life insurance diminishes.
Health insurance
Health insurance provides a refund of medical expenses (economic loss) at the time of admission. Postcovid people recognize the need and importance of health insurance. If your company offers group health insurance, you can easily breathe. However, self-employed people have lower insurance premiums, so it is wise to take out health insurance when you are young. To reduce insurance premiums, we recommend choosing a 5-10% out-of-pocket and deduction amount. And finally, always read the wait period fine print under the policy, whether it is due to a specific illness or an existing illness. Floater policies are superior to individual policies because they can save on premiums while gaining additional benefits.
Car insurance
If the road is clogged with vehicles of all kinds, the vehicles can also be damaged. And the cost of repairs is high. Insurance premiums vary depending on the value of the car (the insured’s declared price), no claim bonus, gender, address, etc. To make car insurance more affordable and more marketable, the Indian Insurance Regulatory Development Agency (IRDAI) has announced that insurers pay as You Drive, Pay How You Drive, and floater policies for owned vehicles. Allows you to introduce the concept. The same individual who should help reduce car insurance premiums.
In the final analysis, in a predatory world, knowledge of these products will help you make rational decisions.
(The writer is a CFA, a former banker, and currently teaches at the BFSI Manipal Academy in Bangalore.)
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