INSURANCE PLANNING

Insurance in simple words is mechanism of risk transfer where an individual transfer his risks to the company in return by paying a specific amount (premium). Let’s understand with an illustration why insurance is important.

Ajay is 35 years old and works for a multinational corporation (MNC). He has a ten-year-old son, Vijay, whom he dreams will one day become a doctor. Ajay’s spouse is a housewife and his parents are retired and dependent on him. Ajay has a home loan and is making monthly investments for Vijay’s higher studies and marriage and his own retirement. Ajay wants to ensure that Vijay gets the best of everything and that he himself is not dependent on Vijay during his retirement in the way that Ajay’s parents are on him. So far everything is going well with Ajay’s plans. But imagine what will happen in the following scenario.

One day while returning home from the office Ajay has an accident and dies. What will happen? Who will take care of the family, Vijay’s education and marriage, the home loan etc.? What are the options available to Ajay so that his family can be taken care of in his absence?

Here had Ajay taken proper insurance coverage for life and protected liabilities through Insurance his family would get enough money after his death so that their needs are fulfilled. Thus Insurance is an important part of any sound financial plan. Different kinds of insurance help protect you and your loved ones in different ways against the cost of accidents, illness, disability, and death.

Besides this Insurance industry has significant role in the growth of economy as this sector not only generates long-term funds for infrastructure development, but also increases a country’s risk-taking capacity.

There are different types of insurance plans which can be used to protect you from any unforeseen events. In broad sense there are two categories of insurance i.e.; life and General insurance. Different types of plan can be used based on the person age, income, family members, assets and liabilities. Each person’s situation is unique and different so the will be the insurance planning.

Some of the overview of insurance planning can be in following ways:

Auto Insurance: Auto insurance can be used to protect your vehicle whether two wheeler or four wheeler from damage to the often-considerable investment in a vehicle and from liability for damage or injury caused by you or someone driving your vehicle. It can also help cover expenses you or anyone in your vehicle may incur as a result of an accident with an uninsured motorist. There are also statutory requirements by state

government to insure your vehicle, but one should consider it buying for his own interest. Cost of insurance can vary but you should buy it based on the amount of risk it covers and not on the discount offered.

Home insurance: This can be used to protect your home from a catastrophe like earthquake, flood and help cover to costs of lawsuits if someone is injured on your property. At least 80% of your home’s replacement value is necessary to cover the cost of repairs. Besides you can also cover the contents of the house which is normally available 50% to 75% of value and can be increased depending on the individual need.

Life insurance: Life insurance provides financial relief to the surviving members of the family in case of loss of earning member, the funds can help in maintain the same standard of living, can help fulfill other liabilities, goals etc. Your risk cover should be according to your outstanding liabilities, your goals and other such things then take risk cover accordingly. Some common ways of calculating cover could be Human life value or need based value, and if require take help of expert. You could choose among term plan, endowment policies, whole life policies, ULIPs or combination of them, but keeping in mind your requirement.

Disability, accidental insurance: In life one could also be hospitalized or unable to work temporarily which could cause a great financial crisis. To protect from such situation you should buy some income protection plan, Accidental insurance which should take care of such situation.

Health insurance: These can be used to protect you and your family members from paying unexpected high medical expenses in case of any disease which may require hospitalization. Now with high medical expenses it can be both mentally and financially burdening for a family if any member is hospitalized. So you can take care of situation by taking a proper health cover for you and your family with adequate amount ,and should be taken based on the features provided like types of diseases, cashless facility available or not and such other factors.

The very purpose of Insurance is protection against various risks to life as well as different liabilities and assets and hence should be a significant part of financial plan. One should be careful read all the terms and conditions mentioned in a policy as they will play an important role in time of claim settlement. One should not trust on agent blindly and should be vigilant from his own side and if possible can take help of some qualified individual or organization who can advise you according to your need and requirement.