Importance of insurance or role of life insurance in our life is one of the hot topic in the personal finance area these days. In fact without an insurance policy you will not be able to make your financial life secure or your personal finance plans complete.
Before proceeding further, I hope you are well aware about what is insurance. You can read my previous article on life insurance. Many people think that insurance means an investment to save income tax. In fact from my experience I can say that, people mostly start talking about insurance every year just before income tax return or at the end of financial year.
But in this article, I will try to explain Why do we need to have insurance in life and why you should not miss understood this with other typical investments. Just to make it clear, insurance is not an investment product, so don’t but any insurance with the intention of investment. This statement is 100% true for term life insurance, but there are various mix products also available where you will get both the benefits of insurance & investment together.
What are the different types of insurance?
Generally there are 2 types of insurance: Life insurance and General insurance. Under every category there are different types of insurance plans. Here I am sharing the basic categories of insurance which you will be able to link with your everyday life.
Types of Life Insurance
- Term Life Insurance
- Whole Life Policy
- Endowment Plans
- Unit Linked Insurance Plans
- Money Back Policy
- Retirement Plans
Types of General Insurance
- Car Insurance
- Travel Insurance
- Health Insurance
- Home Insurance
Why Insurance is a must to an individual in everyday life?
Although there are various types of insurance like life insurance, home loan insurance, two wheeler insurance, car insurance, travel insurance and many more. But the core purpose of any insurance policy is very simple, to provide enough protection to your life or the thing for which you have bought the insurance.
Let’s discover the facts one by one to understand the role of insurance in our life.
1. Buy Safety & Protection
The biggest enemy of our life is the uncertainty or death or any kind of accident. You never know when something wrong happen and your life can turn into a bad situation which can’t be managed easily. E.g. in case you have a sudden heart attack or any life threatening disease and you need 10-20 lakh to operate immediately, then how can you manage that money.
Even if you have that much amount, you might have saved that as emergency fund or some other goals of life like kids education, buying flat or marriage of family member etc. Now if you are the only earning member of the family and due to any such accident or critical illness or say unfortunate death, what will happen to your family’s future goals?
So, you should buy proper health insurance or critical illness insurance as per your health condition and for death benefit you should buy term plans to protect your family’s future financial health. There are also accident & disability insurance plans on top of them to provide extra protection from such incidents.
2. Securing future goals
As per your current income, you have set up a life style with which you want your kids to grow up and make their future. You might be thinking of making more money in coming days with a promotion or changing a job or starting your own business and at the same improving the life style.
But have you ever thought what will happen to your family in case you die in middle of everything? Will your kids be able to reach to their goals that you have planned? Can your family continue the same life-style? What will happen to the loans you took for buying a car or home?
This problem can be solved in case if you would have bought a term plan with adequate sum assured. E.g. a 1 crore term insurance policy could be a good idea for someone who is making 60,000/month to support the immediate financial crisis of your family.
3. Live Life tension Free
In our everyday life there are number of reasons for which we are getting disturbed or stressed out. E.g. in our home we have various electronic products like TV, refrigerators, Ac etc and also Bike, car. When things go wrong it s always expensive & exhaustive to repair them or replace them with new one.
It’s always better to buy maintenance insurance for each product and stay tension free. If you have taken a home loan, then go for a home loan insurance to stay away from the tension of who will pay the loan in case you die. Not only that, due to various natural calamity there might be damage in your property and that also can be insured now a days.
Never forget to buy enough car insurance or two wheeler insurance to cover as much as possible. Although this is a mandatory traffic rule to buy insurance. Nowadays one can buy two wheeler insurance with 3 year duration also. I have purchased the same recently from ICICI lombard and it’s cheap also.
4. Build the habit of saving
When you understand the importance of insurance in life, you will gradually realize the meaning of saving and you will actually start saving. One should stay tension free by taking necessary insurance and then start accumulating money in various investment options.
The habit of saving regularly will make a person sensible. The early you start saving, the more you will be able to accumulate for future. These days there are various insurance products which provide good guaranteed return. If you are happy with that, you can start buying such plans.
Personally, I never invest in insurance cum saving related products. I have enough term plan and for good return I always invest through mutual funds, PPF and Fixed deposit way only. You can checkout the list of best ELSS mutual funds here which will give your good return in long term and also help you to save income taxes.
5. Manage High Medical Expenses
Although I have mentioned about the health insurance, just want to add another point here is that the cost of medical treatment & related expenses are increasing like anything. Not only that now a days due to lifestyle changes and habits most of us are facing various diseases which are not common in medical science.
You might have noticed that the number of cancer patients or diabetic patients has increased like anything in last few years. And to fight with such health issues are not at all joke. I have seen how cancer can eat up all your life’s savings within few days. It’s the story of my one of good school friend, who mother (my aunt) died in lung cancer. In just 40-50 days things changed and the treatment cost was too high. And at the end they were not able to save her also.
Diabetes is another disease which will stay with your till you die. My father in-law is diabetic from last 20 years and I can see how much he is spending every month for his medicines and various pathological tests time to time. Not only that, in my life I have witnessed 10 major operations for my father, in-laws and wife. Although all were not covered under health insurance.
So, here the point is one have to get ready to face such uncertainty. Beyond typical health insurance plans, there are now special health insurance policies to handle critical disease like cancer, kidney etc. E.g. HDFC cancer care plan and many others. You can read my other article on what is cancer care plan.
6. Travel The World With Safety
Who doesn’t like to travel? Nowadays many people are travelling abroad with family and it has become very easy these days. In fact almost everyone love to travel with their family more than once in a year within India only. Travelling give huge relaxation beyond our monotonous hectic life-style.
You can easily plan a trip with the help of any leading travel portals with affordable packages and enjoy foreign locations. But have you ever thought how can you manage any unexpected situations like medical emergency, lost of passport or baggages etc?
A Travel insurance plan plays an important role in this case. You might have listened the Malaysian Airline missing news. The family of those People who have done travel insurance may get some benefit due this unfortunate incident, but others will not.
If you have booked a train ticket through IRCTC recently, then you might have noticed that IRCTC has made the Rs 1 travel insurance mandatory. Whatever ticket you buy related to travel like flight tickets, booking a travel plan online you will find an option for travel insurance.
This kind of insurance policies are good to handle various uncertainties during your travel including death, loss of luggage, medical problems etc. In case you are travelling abroad, a travel insurance is a must.
A Video On Importance of Insurance in Hindi
I have also shared a video on this topic on my YouTube channel. This video is in Hindi language. You can subscribe to my YouTube channel for more upcoming updates on personal finance related topics.
Conclusion :- How Much Insurance is enough and Which Insurance To Buy
These are few important point I thought to describe why insurance is important in individuals life. I know there are many benefits of insurance which can be added here and I will do that gradually in this post. But now the question is how much insurance one should buy and what are the mandatory insurance policies one should buy as there are hundreds of products?
When we talk about how much insurance is enough, generally we talk about a term life insurance only. In simple thumb rule, you should buy 10-15 times more than your annual income. E.g. if you are earning 10 lakh / year, then you should buy a minimum 1 crore term insurance policy.
Besides term plan, the other insurance has their fix value. E.g. under the home insurance your house’s worth value or the loan amount taken against your home is insured. In case of car insurance, the depreciated value of your car is insured. In case of health insurance also, there are products with higher health coverage, but for that you have to pay a higher premium rate. Generally you will find most of the family floater plans with 5-10 lakh cover.
How Many Types of Insurance Should I Buy?
Now, if you ask me how many types of insurance policies one should buy to have a secure life then I think in everyone’s life these are the common insurance policies: a pure term life insurance, Car / Two wheeler insurance, health insurance etc. You might have more than 1 life insurance policies with you as you bought them to save taxes and investment purpose.
Besides that I took home insurance when I have purchased my flat with a home loan which I have closed recently. Travel insurance is valid only when you travel only, but if you are a frequent flyer you can also buy a travel insurance like Bharat Bhraman plan for 365 days also.
If you want, you can also secure your mobile phone also with the help of smartphone insurance. People having costly high end gadgets can opt for such insurance. In fact you can insure your pet’s life also.
So, depending upon your need you can choose various types of insurance policies to secure your life, things related to your life, valuable materials etc. I will be updating this article with more information related to insurance, various types of insurance and more useful examples to make it worthy for readers. My intention is to make people understand why they need insurance in life.
If you find this article useful please share this article to spread awareness about insurance with your friends and family in social media. You can also write a comment below and share your experience or any kind of query related to insurance. I will try my level best to answer and help you to get a solution of your problem.