Today we live in a fast-paced, stress-filled life and we are knowingly and unknowingly exposed to many risks to life, health and property. Managing these risks becomes an essential aspect of our wealth management journey in life. Risks can be mitigated in many ways like taking precautionary measures, avoiding risks or by transferring risks. Insurance is one way of managing risks where we are transferring the financial risk from the insured to the insurer.
There are many different types of insurance available in India, and it can be difficult to know which ones you really need. As an important tool for financial security, individuals and businesses can protect themselves from financial hardship in the event of a covered loss by choosing the right insurance policies. In this article, we will try to understand the different risks faced by us, how we can protect against the same and the benefits of buying adequate insurance.
The 4 Ds of Risks:
Insurance protects against the financial risks at a personal level arising from the four Ds of death, disease, disability, and damages in a variety of ways.
Death:
Life insurance is the most important type of insurance for everyone, regardless of age or income. Life insurance provides financial support to the policyholder's beneficiaries in the event of the policyholder's death. This can help to pay for the comfortable sustainance of the family left behind, cover for the outstanding debts/obligations, and also cover the financial goals for the family to live a respectable life.
The risk of death is typically best covered by pure-term insurance policies. However, life cover can also be obtained under personal accident policies for death occurring due to accidents and traditional life insurance plans which is a blend of protection and investment and may thus not provide the maximum affordable protection desired.
Disease:
Health insurance helps to pay for the cost of medical care, including hospitalization, any operations/surgeries, doctor visits, prescription drugs and so on. This can help to prevent financial hardship in the event of a serious illness or injury. Proper health insurance would also give you access to quality medical care even if your personal finances are limited and thus can prove to be invaluable when needed.
There are two main types of health insurance plans in India: individual health insurance plans and family health insurance plans. Individual health insurance plans cover only one person, while family health insurance plans can help cover the entire family. Critical illness plans are also great to have to protect against the common big lifestyle diseases we are exposed to and are very affordable. The base health insurance policies can be further complemented with top-up and super-top up health plans to extend the cover available.
Disability
Disability can be permanent or temporary and can be partial or full. Disability brings with it its’ own challenges in terms of care, the ability to live life normally and the ability to earn. Adequate protection against these risks becomes very crucial for everyone, especially the earning members of the family. Traditionally, disability is a risk most of us often ignore and can prove to be very costly.
Personal accident policies provide the best cover against disability, whether temporary or permanent. Moreover, such policies are affordable and easy to buy. Further, some health and personal accident policies may even provide you for your loss of income during hospitalisation or disability. Agains the personal accident policies also provide cover against accidental death and are very affordable - something everyone must have in their insurance portfolio.
Damages
A damage or loss to any property/asset can occur due to any reason. There are risks to your car, home, valuables, shop, factory and so on. Adequate protection isrequired to cover the risk of damages. Thankfully, on motor insurance, at least third-party liability is mandatory for all vehicles in India which protects the policyholder’s interests from damages caused to a property or an individual by the policyholder. We would always suggest one to buy a comprehensive motor insurance policy though. Home insurance is another product to protect you against damages and typically cover should be taken for both the structure and the contents. Beyond vehicle and home coverage, there are many other policies available that business owners and professionals can buy depending on their specific requirements and can cover shops, factories, offices, professional indemnity, travel, and so on.
Benefits of Insurance:
By now, everyone would be familiar with the numerous benefits of insurance. Yet, to summarise, we would highlight the three key benefits offered by insurance….
- Financial protection: Insurance can help you to pay for unexpected expenses and emergencies. This can help you avoid going into debt or having to sell assets in order to cover these costs. Insurance acts as your umbrella at a small cost.
- Continuity: Insurance is your hedge against financial shocks. With adequate insurance, financial distress and disruptions in life can be avoided, ensuring continuity of life at comfortable levels, even after the occurrence of the event.
- Peace of mind: Insurance can give you peace of mind knowing that you are financially protected in the event of a loss or tragedy. This can allow you to focus on other things, such as your family, your business, or your hobbies. It gives the confidence and the ability to afford critical medical intervention which may otherwise be difficult in the absence of insurance.
- Tax benefits: In some cases, premiums paid for insurance can be tax deductible. This can help to reduce your overall tax burden. However, tax savings should never be seen as the primary factor for insurance purchase and shoud only be seen as a by-product or side benefit.
Buying Insurance:
We hope this article has helped you to understand the different types of risks faced by us and the options available in insurance to protect ourselves against the same. Before choosing the right insurance plan, we would advise you to have a proper understanding of your needs - the type of insurance policies and the amount of coverage required. Next, look out for and compare policies from different insurance companies before you buy. Make sure that you read and understand the terms and conditions of the policy before you sign on the dotted line. We would recommend that you evaluate your insurance portfolio at least every couple of years and update your portfolio as needed. Your trusted insurance advisor /broker can be of great help in the process of understanding your insurance needs and finding suitable products. Needless to say, this is one critical aspect of wealth protection which you cannot afford to ignore.