Some more Insurances

Hello Friends. In the previous blog we read about the importance of term insurance. Today we would explore about some other types of insurance.

These insurance covers are important for every individual. There is awareness about these but there are misconceptions too. Also the insurance penetration of these is very less as compared to life insurance. So let us explore more.

1) Health insurance: This is commonly known as ‘mediclaim’. This is very popular among salaried employees as it is usually provided as a group cover by the employer. A health insurance cover pays for your medical expenses, if you are hospitalized for more than 24 hours. If you opt for a network hospital the claims are usually settled as cashless claims. But if you opt for a non-network hospital, the expenses are reimbursed by the insurer.

Due to the push given by the central government with launch of schemes, the insurance penetration has increased. But with nearly 70% of the medical expenses being paid out of the pocket, the situation still looks grave.

Usually people covered by employer do not buy personal health insurance. But with one big hospitalization of an insured family member, the other family members are left high and dry. Also the corporate cover would not take care of your expenses if you leave the job or in case of unfortunate loss of job. For the self employed people with irregular cash flows, hospitalization would put pressure on the finances.

So it is always better to buy health insurance even if you are covered by the employer. One can buy an individual cover or a family floater depending on the family size and age. The extent of cover should depend on the city you live in. So someone staying in a metro city should opt for a higher cover than someone staying in a tier 2 city. The more evolved investors might also want to look at critical illness cover which would cover expenses related to cancer treatments, kidney failure, paralysis etc.

2) Personal accident insurance: This is popular among the vehicle owners. This is usually bought along with the motor insurance as a comprehensive package. But should it be restricted to the vehicle owners? I believe it is as important as life & health insurance. While the term insurance pays your dependents on your death, the health insurance pays for your hospitalization. But what if your meet with an accident and are rendered jobless due to loss of a limb? The term insurance would not pay you as you are alive. The health insurance would have paid for your hospital stay and up to 60 days after being discharged. Who would compensate you for the loss of income in this case?

A personal accident policy takes care of you in this situation. It pays for accidental death, permanent total disablement, permanent partial disablement, temporary total disablement, broken bones. The accident does not necessarily mean being hit by car or a bike. You can claim even if you trip down the stairs, fall off from the bicycle etc.

The good part is the premium is not linked to your age; rather it is a function of your occupation. The premium for personal accident cover of 10 lakhs for a person with administrative type of job is well below Rs.1000 per annum. With low yearly premiums this cover is a must-have even if you do not have financial dependents.

3) Home Insurance: This is usually sold along with the home loan. The home loan lender insures the mortgaged asset (your home) from fire and natural calamities. What if the home loan is cleared? What if you are staying in a rented accommodation? Should not you insure your home and/or its contents? The answer is a plain ‘Yes’.

A home insurance covers the structure and its contents from fire and natural calamities. If only the structure is covered, the insurer will pay for the cost of reconstruction. If the contents (domestic appliances, furniture etc) are covered, the insurer will pay for those too. You can also choose to cover your home from burglary too. It is always better to opt for ‘reinstatement’ type of cover instead of ‘depreciated cost’ type of cover.

With the portfolio of Indian investors being heavily tilted towards real estate, one major calamity can pose serious threat to the savings. So it is prudent to insure your home and its contents. If you are staying in a rented accommodation at least insure the contents. Do not wait for the next floods, landslides, earthquake to wake up to an uninsured home.

Finally insurance is a subject matter of solicitation. An insurance product is not a packaged item like soap. It can be suited to the requirements of the buyer. So the obligation of understanding the terms and conditions of the insurance policy lies with the buyer i.e. you.

So these are the basic insurance requirements before you begin the investment planning process.