Which Insurance is Important?
Insurance is a financial protection or mitigation tool against possible unforeseen hardships. The insurer assesses the possible hardship and pays in line with the agreed policy. Such an amount is termed “Sum Assured” or “Sum Insured” or “Insured Value” etc. It is imperative to know how insurance can make a positive impact on our lives.
Insurance is now a “must-have" rather than a “good-to-have" part of our financial plan. There are broadly two types of insurance. Let us understand how they are relevant to you:
Life Insurance:
Like any responsible person, you would have planned for a comfortable life basis your income and career projection. You and your family will be dreaming of basic things such as a good house and quality education for children. But what if you will not be around to fulfil those dreams and plans? Life insurance plans can help you plan for the financial future of your family, even in your absence.
- Child Insurance Plan: Child insurance plans like ULIP and savings plans gain investment value over time. They also provide life insurance coverage to the insured. These plans are perfect for investing in your child’s higher education and marriage goals.
- Term Insurance Plan: Term life insurance is the pure form of life insurance. Term life cover only offers a death benefit for a limited period. The benefit of term insurance is that you can provide an adequate financial safety umbrella to your family at a nominal premium cost. Although the emotional loss can never be made up for, the loss of family income can be backed by life insurance. iSelect Smart360 Term Plan is an example of a term life insurance policy offered by Canara HSBC Life Insurance Company.
- Unit Linked Insurance Plan (ULIP): ULIPs are investment cum insurance plans that come with a dual benefit of life cover plus return on investment. In case of the unfortunate demise of the policyholder, the nominee would receive the sum assured, or the policyholder would receive the fund value at the end of the policy term. ULIPs allow partial withdrawals, too. Amounts paid towards premiums are deductible from taxable income under section 80C, whereas all payouts are exempt from tax under section 10(10D).
- Endowment Plans: An endowment plan is designed as a safe investment strategy that also gives your family a financial cushion in case of your untimely demise. At the time of maturity, endowment plans give back the guaranteed amount + bonuses + guaranteed annual additions, if any. Most endowment policies give extended life cover even after the maturity value is paid out.
- Pension Plans: The pension plans give you a pension in the form of annuities. You can choose one of the following options after retirement for the income:
a) Immediate Annuity: The pension starts as soon as you invest lump sum amount.
b) Deferred Annuity: Invest gradually and start a regular stream of income a few years later.
If you have recently retired and would like to invest a lumpsum amount to earn a pension, the immediate annuity suits you best. If you have some time to retire, a deferred annuity gives you time to invest over the years and build a corpus. You will get income streams called “annuities” till the end of your life.
Non-Life Insurance:
Non-life insurance is also referred to as general insurance and covers any insurance that is outside the purview of life insurance. Motor insurance, property insurance, transit insurance, health insurance, etc. fall under non-life insurance.
- Auto Insurance: Auto insurance offers protection from accidental damages to your automobile. Auto insurance also includes cover for third-party damages, including bodily injury or property damage. Auto insurance is also a mandatory policy if you drive a vehicle on public roads.
- Home Insurance: Home insurance is a useful insurance cover for homeowners. Home insurance can include insurance for the home structure (building) and the contents within it. The tenant’s home insurance will only include the cover for home contents and not the structure. Home insurance will cover you against property damage and loss of goods due to fire, theft, etc.
- Health Insurance Plan: Health insurance offers financial support against sudden medical expenses and health emergencies. You can buy Mediclaim and critical illness health insurance plans. Mediclaim insurance can take care of medical bills and surgery expenses, whereas critical illness insurance offers a lump sum amount for life-threatening illnesses.
