Among the priorities of being adulting, is investing in an insurance policy.
But so many of us find ourselves confused while choosing a policy.
Given the variety of policies all these companies have to offer, confusion is imminent. To find headway, you need a clear idea of the benefits you seek.
Each policy has its terms and benefits. Before you zero down on one policy, always make a cost-benefit analysis. Weigh the sum assured against the premium you will pay. Based on the benefits each policy offers, the premium differs.
Some offer economic premiums against a decent sum on maturity. Others charge higher premiums when they also involve an element of investment returns. The premium you pay is a derivative of not just the policy you take but also your age, medical history, earning capacity, etc.
To help you understand insurance better, we list here, the different types of insurance and how each serves you.
From a broader perspective, this is how insurance policies can be categorized:
- Life insurance
- Whole Life
- Pension plans
- Family plans)
General insurance covers everything tangible. It ensures investments made in a house, vehicle, or travel and health.
When disasters strike, they make no announcement. These policies save you from sudden expenses without disturbing your finances.
These are a few policies you should invest in, to cushion your financial stability.
- Health Insurance
Health insurance gives you an indemnity plan that finances hospital and other medical expenses, as quoted in the policy papers.
This helps you deal with medical emergencies without throwing your finances out of place.
Most insurance companies offer a choice between an individual and a floater policy. The latter covers your spouse and two family members besides your health.
- Motor insurance
This provides indemnity against damages due to theft, accidents, vandalism, etc.
You can usually cover a motor insurance policy with a nominal sum on purchasing a new vehicle.
Under this, there are comprehensive and third-party policies. While you have comprehensive insurance policies as well, third-party policies are mandatory for every vehicle in India.
- Home Insurance
This policy protects your pocket from a financial hit in the event of damages, whether natural or man-made. It also covers the rent you pay in case of temporary accommodation while your house is being renovated.
- Travel Insurance
Mishaps and reschedules are quite common while travelling, which can cause a major expense on your end. Purchasing travel insurance before you fly protects you against losses in case of loss of luggage, flight delays, trip, or hotel cancellations, etc.
It also helps you with cashless hospitalization in case you are admitted on your travel.
These policies protect your life – after your death or loss of earning capacity.
- Term insurance
The simplest form of insurance, term policies provide an extensive cover for a stipulated term at an economic premium charge. In this policy, the insurance comes into effect on your death, when your nominee gets the sum assured.
If you continue to live as the insurance matures, you do not get any sum assured back. You can, however, renew the policy for an additional five years.
- Endowment policy
Endowment mixes a bit of investment with insurance. It provides a cover for a certain period and accumulates a corpus for major life goals.
Of course, the premium, in this case, is higher – where a portion is appropriated to the sum assured, and the rest is invested in low-risk instruments.
If you survive through the maturity of an endowment policy, you get the sum assured back along with a bonus,
- Whole life policy
As the name suggests, this policy insures your entire life, to a maximum of 100 years of age.
On survival through maturity, the holder enjoys the sum assured along with maturity benefits.
The premium is a little less than an endowment policy but more than term insurance.
- Unit-Linked Insurance Policies (ULIP)
ULIPS are policies linked to investment units. Investing in a ULIP means buying a life cover while also ensuring capital appreciation, just like any other investment tool in the market.
The rate of capital appreciation depends on the kind of investment you choose – higher risk, higher returns. That said, if you are looking for a higher return, expect a high premium as well.
Such policies usually offer a partial withdrawal of the capital at the end of pre-determined lock-in periods.
E.g. If you have purchased a ULIP for 15 years, you may be allowed to withdraw partial amounts at the end of 5 years, or 10 years, and then the entire sum assured comes back at the end of 15 years.
- Pension policies
A pension plan is simply a tool to cover your retirement. You pay the premium while you are still working. You are paying for your retirement beforehand, ensuring a steady income.
- Child/family policies
These plans help securing your child’s future financial needs in your absence. Higher educational expenses and wedding bills are hefty. If you, as the breadwinner are not around, it covers the big spends for them. If you survive till maturity, you use the same money for the same goals anyway.
The last word:
Opting for life insurance can be tricky, but it is necessary. It is significant in planning your future finances. Research well and choose a cover that protects your pocket in the current scenario too.
Most industry experts say that a term cover is the safest and the most economic policy. So, make sure you have at least that one covered, to start with.
As your income grows, you can make changes in your insurance portfolio that fulfill your changing needs.