Your first insurance policy
The
insurance market can be very confusing, especially for the first-time buyer.
Here’s how to cut through the clutter and purchase the right cover.
It’s important to buy insurance
because it protects you against financial loss due to unforeseen events. What’s
more important is that you buy the right cover. An unsuitable policy will not
only be a drain on your finances but also give you inadequate protection. You
must fully understand the features and limitations of the policy you are
buying. Here are a few tips to help you choose the right cover.
DO YOU NEED INSURANCE?
Before you buy life insurance, ask yourself if you really need it. A life cover is meant to replace your income and provide financial assistance to your dependants if something untoward happens to you. If nobody is dependent on your income, you don’t need to buy it. Some insurance policies are sold as retirement tools or tax-saving options. However, these objectives are better achieved by other saving options, such as bank deposits and the Public Provident Fund.
You will need life insurance when you get married and start a family. At that stage, a pure protection term plan should be your first life insurance policy. “You should buy a term insurance plan even before you open a bank account,” says T R Ramachandran, managing director and CEO of Aviva Life Insurance. Term plans are especially useful if your income is not very high because it provides a high cover at low cost. The costs are even lower if you buy online. A 28-yearold man can buy a 1 crore cover for around 8,000 a year.
According to experts, one should have a cover of at least 5-6 times one’s annual income. This does not include any outstanding loans taken by the policyholder. Also, buy for the maximum term available. “Your insurance should not end when you are in your 50s because buying a new plan at that age may not be feasible,” warns insurance professional Deepak Bhuwania.
CUSHION AGAINST MEDICAL EXPENSES
The high cost of private health care means you cannot afford to ignore medical insurance. Even if your employer provides a health cover, you may have to buy on your own. You might be left without a cover if you change jobs. A basic indemnity-based medical insurance plan is advisable. If you are married and have children, buy a floater plan because it offers a larger cover for the entire family at a lower price compared to individual plans for each member. Besides a term insurance and medical cover, you should also consider buying a personal accidental policy to cover death or disability due to an accident. For as little as 225 a year, you can get a basic cover of 5 lakh, though add-on covers may cost more. A personal accident policy is unique because it offers three benefits. If the policyholder dies in the accident, it provides a lump-sum payment to the nominee. If he survives, it pays for hospitalisation expenses. If he is disabled and loses livelihood, it provides financial support. Life insurance plans cover only death, while medical plans pay only for hospitalisation. However, you will have to do a lot of running around to buy this plan. Agents rarely sell these low-cost personal accident covers because they earn barely 20-30 as commission. You can buy an accident cover as a rider along with a life insurance policy.
COVERING YOUR HOUSE & CAR
A house is perhaps the costliest asset, but very few homeowners insure it. The cost of insuring the structure against damage is as low as 50 per 1 lakh. Keep in mind that you don’t need to insure the house for the value of the property, but only for the cost of reconstructing it. The cost can vary from 1,500 per sq ft for a basic structure to 2,500 per sq ft for a premium construction. If you expand the cover to include burglary and breakage, the total cost of the insurance will not be more than 2,500 a year.
It is best to go for a comprehensive plan that covers a wide range of risks. A standard fire and other perils policy covers damage due to fire, lightning, storm, flood, landslide, earthquake, vehicle impact, rioting, arson and bursting of pipes and tanks.
For your vehicle, don’t be lured into buying the add-on covers that cost a bit but are not really necessary. A plain vanilla insurance cover will do just as well. Do remember to renew your third-party insurance cover in time. This protects you against compensation claims from third parties. Without it, you could be exposed to a risk running into several lakhs of rupees.
DO YOU NEED INSURANCE?
Before you buy life insurance, ask yourself if you really need it. A life cover is meant to replace your income and provide financial assistance to your dependants if something untoward happens to you. If nobody is dependent on your income, you don’t need to buy it. Some insurance policies are sold as retirement tools or tax-saving options. However, these objectives are better achieved by other saving options, such as bank deposits and the Public Provident Fund.
You will need life insurance when you get married and start a family. At that stage, a pure protection term plan should be your first life insurance policy. “You should buy a term insurance plan even before you open a bank account,” says T R Ramachandran, managing director and CEO of Aviva Life Insurance. Term plans are especially useful if your income is not very high because it provides a high cover at low cost. The costs are even lower if you buy online. A 28-yearold man can buy a 1 crore cover for around 8,000 a year.
According to experts, one should have a cover of at least 5-6 times one’s annual income. This does not include any outstanding loans taken by the policyholder. Also, buy for the maximum term available. “Your insurance should not end when you are in your 50s because buying a new plan at that age may not be feasible,” warns insurance professional Deepak Bhuwania.
CUSHION AGAINST MEDICAL EXPENSES
The high cost of private health care means you cannot afford to ignore medical insurance. Even if your employer provides a health cover, you may have to buy on your own. You might be left without a cover if you change jobs. A basic indemnity-based medical insurance plan is advisable. If you are married and have children, buy a floater plan because it offers a larger cover for the entire family at a lower price compared to individual plans for each member. Besides a term insurance and medical cover, you should also consider buying a personal accidental policy to cover death or disability due to an accident. For as little as 225 a year, you can get a basic cover of 5 lakh, though add-on covers may cost more. A personal accident policy is unique because it offers three benefits. If the policyholder dies in the accident, it provides a lump-sum payment to the nominee. If he survives, it pays for hospitalisation expenses. If he is disabled and loses livelihood, it provides financial support. Life insurance plans cover only death, while medical plans pay only for hospitalisation. However, you will have to do a lot of running around to buy this plan. Agents rarely sell these low-cost personal accident covers because they earn barely 20-30 as commission. You can buy an accident cover as a rider along with a life insurance policy.
COVERING YOUR HOUSE & CAR
A house is perhaps the costliest asset, but very few homeowners insure it. The cost of insuring the structure against damage is as low as 50 per 1 lakh. Keep in mind that you don’t need to insure the house for the value of the property, but only for the cost of reconstructing it. The cost can vary from 1,500 per sq ft for a basic structure to 2,500 per sq ft for a premium construction. If you expand the cover to include burglary and breakage, the total cost of the insurance will not be more than 2,500 a year.
It is best to go for a comprehensive plan that covers a wide range of risks. A standard fire and other perils policy covers damage due to fire, lightning, storm, flood, landslide, earthquake, vehicle impact, rioting, arson and bursting of pipes and tanks.
For your vehicle, don’t be lured into buying the add-on covers that cost a bit but are not really necessary. A plain vanilla insurance cover will do just as well. Do remember to renew your third-party insurance cover in time. This protects you against compensation claims from third parties. Without it, you could be exposed to a risk running into several lakhs of rupees.
ETW131104
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